Laws and Norms: When Should We Expect to Find Norms. these gaps allow (for example people appreciate the freedom of choosing a path after

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1 Puget Sound ejournal of Economics David Severn 12/1/02 Law and Economics Laws and Norms: When Should We Expect to Find Norms Laws are used to organize societies. Through the use of laws, people are able to make efficient transactions, take the correct amount of care, and are encouraged to act in a socially responsible manner, among other things. Despite these benefits, the laws that govern people in the United States are not all encompassing; they leave many aspects of life unregulated to be organized by other means. While many people enjoy the freedoms these gaps allow (for example people appreciate the freedom of choosing a path after graduation from high school), oftentimes these gaps aren t left completely void (many graduates feel a duty to seek higher education). In the place of free choice, many gaps are filled by social norms. Like laws, norms can also encourage people to act efficiently. By following established norms people receive benefits, while violators incur costs. Since both laws and norms have the capacity to procure efficient behavior, economists are interested in the circumstances under which norms are preferred to laws and vice versa. Although laws provide an efficient means of regulation in many situations, norms are preferred to laws when the costs of enforcing a legal rule exceed the benefits of enforcement. Classically, the word norm has been used to describe generally accepted and followed behaviors. While this use of the word is accurate, it lacks the specificity that this discussion requires. To affect behavior, norms must not only distinguish desirable and undesirable behavior, they must also give authority to a third party to punish people who engage in undesirable behavior (Posner 2). To understand how norms gain this

2 influential power it is helpful to examine the origin of norms. One scholar who has studied the origin of norms is Richard H. McAdams. While McAdams presents a deep and comprehensive analysis on the source of norms, essentially his argument can be quickly summarized as follows. Norms arise when a consensus within a society values certain behavior and this consensus is publicized. Because a strong portion of a community values this behavior, violators of norms loose the esteem of others when the violation is detected. Taken on the aggregate, this costless form of punishment has the ability to change behavior. When the loss of esteem exceeds the benefit of the undesirable behavior, people will internalize the cost of compliance and conform to the social norm. To illustrate this idea with an example, norms influence where people choose to sit in the library. People who wish to study in groups or to make noise will usually choose to locate themselves in areas where noise is accepted and expected. They do this to avoid the glares, gossip and guilt that result from disturbing the quiet desired by other diligent workers. In other words, people view the cost of finding an appropriate place to make noise in the library as cheaper than leaving the good graces of their peers and thus internalize the search costs. Albeit a simple example, countless other comparable examples of common norms result in the similar conclusion that, like laws, norms have the power to affect how people behave. Since norms do indeed have the power to affect how people behave could we use norms instead of laws to govern society? To answer this question, economists are interested in examining the efficiency that norms can achieve. More specifically, can social norms result in efficient behavior? The ability of norms to create efficient behavior is easy to see when trivial behavior is examined. For example, the norm of 2

3 walking on the right side on crowded sidewalks, stairs and in crowded hallways allows for efficient behavior by avoiding the pandemonium of individual action. If everyone walked exactly where they pleased in congested areas, people would constantly bump into one another and face the formidable task of maneuvering from point A to point B by ducking and weaving amongst the masses. Thus, by encouraging people to internalize the cost of walking exactly where they want, this norm allows for the more efficient result of social order. Like this example, many common trivial norms result in efficient social organization. While trivial norms can be efficient, the efficiency of norms becomes much more interesting when more substantial norms are scrutinized. In his examination of norms, McAdams explored some interesting norms to show that conditions can exist where more significant norms result in efficient behavior. Typically, people value external behavior that is in their self interest and from which they benefit (McAdams 6). Since norms arise from a consensus of this individually valued behavior (as previously described), conduct consistent with the norm not only yields esteem for the adherent, but also benefits the majority. Thus, when norms reflect a strong value held by a large portion of a community, they result in social benefits that exceed social costs. One arguably efficient example of a norm consistent with this analysis is the anti littering norm. While anti littering laws exist to support the anti littering norm, the norm against littering provides the more powerful result within communities. People enjoy using clean parks, living in neighborhoods whose streets are devoid of litter, and in general prefer clean rather than unclean conditions. Since this value is widely held and known, viewers of intentional littering are quick to confront violators within the 3

4 community and spread the word about the misconduct. With this result in mind, individuals in the community will avoid littering in settings where the act will be discovered due to the costs known litterers incur. This behavior is efficient due to the high social costs of littering. The social cost of littering not only includes the viewer s lower level of utility (a high cost itself due to the strong value for clean conditions), but also the cost of cleaning up the litter as well. Because the social costs of littering are high, whereas the cost of holding onto the trash and finding an acceptable means of disposable are relatively low, the anti littering norm results in efficient behavior. Although this example reveals that the influential power of norms can result in efficient conduct, other examples show that norms can also be inefficient sources of organization. According to Eric Posner, even some of our most cherished norms result in inefficient behavior. Take honesty for example. While honesty appears to promote efficiency by allowing people to depend upon commitments and safeguard against opportunistic behavior, it also appears to interfere with efficiency by preventing people from exploiting private investments in information (Posner 4). Of course this interference with efficiency may be viewed as an acceptable cost to achieve honesty, other norms clearly result in inefficient and undesirable results. A prime example of this is the code of silence found in police departments across the United States that forbid officers from disclosing the misconduct of other officers. Keeping a community safe can be a hazardous and stressful job that results in the occasional outburst or perk. Perhaps an officer is driven to use excessive force by a noncompliant perpetrator, or is given gifts to keep the neighborhood tavern in good graces. Obviously corruption and the norm it protects, leads to a socially inefficient 4

5 outcome, but from the officer s point of view the norm initially appears to be efficient. Officers benefit from the norm and are able to avoid the high cost of being sanctioned for harming citizens. In spite of this apparent efficiency, as the norm is pushed to higher and higher levels of secrecy, the consequences of corruption become grave. Serious corruption damages the reputation of all police officers, destroys their morale and, more importantly, jeopardizes their safety (McAdams 27). Thus, not only is this norm socially inefficient, but it also can become inefficient for those among which the norm arises. Since norms can result in both efficient and inefficient behavior, norms do not always provide a perfect or desirable substitute for the law. With this in mind, efficiency requires that some combination of norms and laws be used to encourage desirable behavior. While laws provide an efficient way to govern a lot of behavior, the enforcement of law is costly and results in inefficiency when enforcement costs exceed the benefit of the law. On the other hand, while norms provide an efficient means to control behavior when the benefits of noncompliance are less than the cost of lost esteem, norms result in inefficient regulation when breaking the norm results in high benefits that make perpetrators indifferent to lost esteem. To put it more simply, laws are more efficient when the benefits of undesirable behavior are high, whereas norms are more efficient when the benefits of noncompliance are relatively small. Thus, laws should be the rule of choice to control damaging behavior whose potential benefits greatly exceed the costs that can be inflicted by norms, while norms should be desired when the gains from socially undesirable behavior are small enough that they can be controlled by the loss of esteem. 5

6 Bibliography McAdams, Richard H. The Origin, Development, and Regulation of Norms. Michigan Law Review (1997): Posner, Eric A. Law, Economics & Inefficient Norms. The University of Pennsylvania Law Review (1996):