Guidance via Narratives

We provide a framework to examine how a social planner can use narratives alongside policies to guide citizen behaviour. In the model, a government chooses policies and narratives to communicate while citizens choose actions and which narratives to believe in. Citizens’ actions affect the incentives for government to implement particular policies, while narratives matter because they motivate actions. The complementarity between prevailing narratives, citizen actions and policies can lead to multiple equilibria and inhibit the government from taking its preferred policy action. Increasing the budget for its preferred policy does not allow the government to break out of policy ineffectiveness and may backfire, since it can be used for a rival policy in the face of public opposition. We characterise the set of conditions under which a government can break out of policy ineffectiveness by creating a new narrative, thereby guiding citizen behaviour.