In 2000 the Oregon Law Review (Vol. 79, Number 1) published the proceedings of a symposium on new and critical approaches to law and economics, led by a paper delivered by law professor Robert Cooter entitled “Three Effects of Social Norms on Law: Expression , Deterrence, and Internalization”.
I wish to summarize and discuss its salient points here for the benefit of legal researchers visiting this blog.
The concept of “instrumental rationality” enunciated by German sociologist Max Weber is embodied by modern state administration. It is defined as the “pursuit of explicit ends through efficient means.”
It contrasts with the belief of another German philosopher Franz Kafka, who holds that modern state bureaucracy embodies irrationality, or the “pursuit of contradictory ends by inefficient means.”
What determines whether state law is rational and efficient, or irrational and inefficient?
State organizations suffer from agency problems that preclude effective motivation of people by formal means alone. Perhaps effective formal institutions depend on flourishing informal institutions. With these thoughts in mind, political scientists have examined civic culture, economists have examined social capital, and legal scholars have examined social norms.
What is the vision of the proper role of the state in modern society?
There are three effects of social norms on law: expression, internalization, and deterrence.
Law has three functions: pronouncing the obligation, justifying it, and sanctioning wrongdoers.
Law must be aligned with morality to insure effective social control.
When do social norms collapse? What are the effects of non-legal sanctions on legal sanctions? How can law change behavior without deterring anyone?
An old tradition in Anglo- American jurisprudence, called the "imperative theory of law," asserts that a “law is an obligation backed by a state sanction”.
According to this tradition, a “social norm” is an “obligation backed by a social sanction”. By "obligation" is meant a “statement about what people ought to do”. By “social sanction” is meant “punishment imposed, not by state officials, but by ordinary people, such as shunning a litigious lawyer or refusing to deal with a law firm that organizes hostile takeovers.”
Social norms may be analyzed in terms of “demand, supply, and equilibrium”.
Obeying a norm often “costs something” in terms of money, time, effort, unpleasantness, or risk.
A person who has “internalized a norm” is willing to sacrifice something to obey it. The estimate is that 80% of the citizens will pay something to obey the norm, whereas roughly 20% will pay nothing.
There are those who believe that the only value that can be placed on obeying norms is “instrumental”.
For example, most lawyers view participating or not participating in hostile takeovers as purely instrumental. In so far as participating makes more money for them, they will participate.
Obeying a norm often imposes “direct costs” in money, foregone opportunity, inconvenience, or effort.
In addition, obeying a norm often has “instrumental value”, such as obtaining praise, esteem, promotion, and preferential dealings. Obeying a norm also conveys the benefit of “avoiding a social sanction”.
The “net cost of obeying” a norm equals the “direct costs minus the instrumental benefit”.
For social norms, the costs of obeying a norm can also decrease for a sociological reason. People are notoriously susceptible to “group pressures”, which are variously described as “conformity, herd effects, or social solidarity”. Group pressures often “lower the relative cost of popular acts”.
Now, consider the direction of movement when the system is out of equilibrium. If the willingness-to-pay curve is above the expected cost curve, more people are willing to do the act than required to sustain the current cost of doing it, so the cost is decreasing. Conversely, where the cost curve is above the willingness-to-pay curve, fewer people are willing to do the act than are required to sustain the current cost of doing it, so the cost is increasing.
If everyone believes that less than 20% of the citizens will obey the norm, then their belief will prove correct and the system will converge to the equilibrium at 0%.
Conversely, if everyone believes that more than 20% of the citizens will obey the norm, then their belief will prove correct and the system will converge to the equilibrium at 50%. Thus, the system has characteristics of a “self-fulfilling prophecy”.
Given this fact, the law, by influencing people's beliefs about what others will do, might play a crucial role in determining the outcome.
For example, assume the state wants citizens to obey the social norm. If the state is careful about its pronouncements, so that most citizens believe them, then the state might cause the system to converge to the equilibrium at 50% merely by making the appropriate pronouncement.
The law may tip the balance in favor of “informal enforcement”.
Mere proclamation of a rule tips the balance in favor of informal enforcement by citizens.
Different countries have different levels of “internalization of the social norm”.
In general, social interactions can have multiple equilibria whenever the net cost of obeying a norm decreases with the number of obedient people.
A credible state can influence the choice of multiple equilibria among citizens by pronouncing the law.
The “expressive power” of the law derives from pre-existing multiple equilibria in the underlying system of social interactions.
Pronouncements by state officials influence citizens. To predict the success or failure of pronouncements, a “theory of expressive law” needs the concept of "cheap talk." The distinction between “cheap and expensive talk” turns on the difference between incentives and expectations.
Expensive talk, such as contracting, disclosing, or distorting, changes the schedule of payoffs attached to different actions.
To illustrate, breach of contract triggers damages, inaccurate disclosure risks liability, and extortion provokes criminal punishment.
Cheap talk does not change the schedule of payoffs. Instead, under certain circumstances, cheap talk changes expectations.
How can cheap talk change expectations without changing the schedule of payoffs? If it is in my best interest to reveal my true plans to you, then you have reason to believe my pronouncements about my plans.
Under these circumstances, you should believe what I say, even though my saying it does not affect my legal liabilities or otherwise change my schedule of payoffs.
The conditions for credible cheap talk apply to everyone, including government officials. If government officials plan to do something, and the payoff to officials is highest when citizens have correct beliefs about official plans, then the official pronouncement is credible.
A good political leader uses cheap talk to change the behavior of citizens.
To demonstrate, assume the leader announces plans to increase dramatically the percentage of citizens who obey the social norm. If at least 20% of the citizens believe that the leader has such a plan that will succeed, then they will begin to obey the norm, which will cause 30% more of the citizens to follow their example, and the system will ascend to the equilibrium where 50% do their duty.
The success of the leader's plan will increase his credibility among citizens.
Like this leader, officials in an effective state announce plans that will work and avoid announcing plans that will fail.
For example, officials should wait to announce that they plan to eliminate smoking in airports “until social conditions are right for the plan to succeed”.
Conversely, if politicians manipulate people by announcing unrealistic plans, citizens will believe that the officials are really planning something else.
Rearranging the payoffs can change the coordination game into a “game of perfect deceit”, where a person always wants others to believe the opposite from his true plans. Or, rearranging the payoffs can produce a game of imperfect deceit, where a person sometimes wants others to believe the opposite from his true plans.
In either of these cases, cheap talk is ineffective.
Compared to cheap talk, expensive talk is formal, legalistic, and clumsy. Consequently, expensive talk has higher transaction costs than cheap talk.
The state that creates incentives for effective cheap talk between officials and citizens saves transaction costs. Effective cheap talk uses law expressively.
In general, the expressive function of law works best when state officials enjoy credibility.
Credible talk complements the “ideal of public reason”. The ideal of public reason concerns the conditions of political discourse in a liberal democracy. In a liberal democracy, officials ideally give the true reasons for public policies.
Candor promotes public debate and makes democratic deliberation meaningful. Arranging incentives of officials to make cheap talk credible promotes the ideal of public reason.
Economists have designed "incentive compatible mechanisms" for the supply of public goods.
No research focusing on mechanisms to induce public officials to disclose their true plans exist.
The theory of cheap talk provides the foundation for designing mechanisms to induce public officials to disclose their true plans.
Having discussed expression, I turn to the deterrence of wrongdoing. As already discussed, the imperative theory defines a law as an obligation backed by a sanction.
When law aligns with social norms, the law can use state sanctions to supplement social sanctions.
For example, fines can supplement the shame associated with being a tax cheater. Supplementing the social sanction with a legal sanction increases the total sanction. An increase in the total sanction from disobeying a norm is equivalent to a decrease in the relative cost of obeying the norm.
The goal of deterrence typically requires the injurer to internalize the harm that he caused. In the absence of a social sanction, a judgment forces the injurer to internalize the harm that he caused. In the presence of a social sanction and a legal judgment, the injurer will internalize more than the social cost of the harm that he caused. To internalize exactly the social cost of the harm that he caused, the injurer who faced a social sanction should pay a legal judgment.
Assume that law causes internalization and consider its effects. Whereas deterrence shifts the cost curve, internalization shifts the willingness-to-pay curve.
Economics can comprehend the internalization of values by assuming a "taste" for obeying social norms. Postulating different tastes among people, however, accomplishes little in the absence of an explanation of why some people have such tastes and others do not.
Economic theory is only beginning a sustained inquiry into the question, "Where do preferences come from?".
People care about their partners' trustworthiness. People have more trust in morally committed persons, who will sacrifice to do the right thing.
People often prefer partners who have internalized morality.
To act on this preference, people must observe the moral commitments of others. The moral commitments of strangers are opaque, but, as people get to know each other better, their moral commitments become translucent.
Given that moral commitments are translucent and people care about the moral commitments of their partners, moral commitments affect opportunities.
The dependence of opportunities on preferences gives a person an incentive to change his preferences.
If people tend to make moral commitments to increase their opportunities, then the state has only limited power to cause citizens to internalize values.
To induce people to internalize values, the state must reward citizens for having civic virtue.
For this purpose, officials bestow honors, awards, and praise, as well as their opposites (dishonor, punishments, and condemnations).
To reward people for having civic virtue, however, the state must infer character from behavior. Inferring character from behavior requires intimate knowledge of the person. Since officials in large states are remote from most citizens, the character of each citizen is relatively opaque to state officials. Consequently, officials lack the information needed to reward people for acquiring civic virtue.
Compared to the state, people in intimate relationships with each other are relatively good at inferring character from behavior. Consequently, the primary influences on character are intimate relationships such as families, friends, and colleagues. Given these facts, the state will have limited success instilling civic virtue in citizens. Instead, the state should prompt family, friends, and colleagues to instill civic virtue in each other. In so far as family, friends, and colleagues prefer relationships with civic-minded people, individuals have an incentive to cultivate civic virtue. The primary way to prompt people to instill civic virtue in each other is by aligning law with morality. When law aligns with morality, individuals who cultivate morality necessarily acquire civic virtue. Consequently, the law enlists the force of internalized morality to achieve the ends of the state.
Promulgating a law often involves proclaiming a new obligation, describing the sanction attached to its violation, and providing reasons for enacting it.
Proclaiming a legal obligation gives people instructions on what to do, which principally promotes the coordination of behavior.
Attaching a sanction to an obligation specially deters its violation.
Explaining the law ideally convinces citizens to follow it.
In brief, the three aspects of promulgating a law chiefly aim at expression, deterrence, and internalization.
Laws that have all three parts potentially have all three consequences. To illustrate, consider promulgating a law prohibiting a particular pollutant. The new law's pronouncement may make polluters expect that others will abate. If more abatement increases the social pressure on polluters, then the change in expectations might cause a jump to a new equilibrium (expressive effect). In addition, when the state attaches a sanction to polluting, some polluters will abate to avoid the sanction (deterrence effect). Finally, the legal explanation for this new obligation may convince some people to change their values and prefer to abate (internalization effect).
In conclusion, law and social norms have complementary strengths as means of social control. First, informal social norms are vague, general principles. To illustrate, social norms are imprecise about the obligations that smokers owe to non-smokers or the appropriate sanction for a tax cheater. The promulgation of a law often transforms a vague principle with an imprecise sanction into an explicit obligation with a definite sanction. Second, citizens use all available information, including gossip and rumor, when applying informal social sanctions, whereas officials apply sanctions after a trial or hearing that follows prescribed rules of evidence.
Third, compared to social norms, law can impose heavier punishments, whose application involves more risk to the enforcer.
To illustrate, many people will complain about someone lighting a cigarette in an airport, but few citizens will intervene to prevent an armed robbery.
Similarly, the law prohibits private citizens from imprisoning robbers.
Which is better, a vague formulation of an obligation and sanction combined with a subjective determination of wrongdoing and enforcement by public citizens, or an authoritative formulation of an obligation and sanction combined with an objective determination of wrongdoing and enforcement by professionals? Social norms have the
advantages of flexibility and low transaction costs, whereas law has the advantage of precision and the disadvantage of high transaction costs. When social norms fail to control harmful behavior, law should supplement them.
The "normative failures" theory of law resembles the market failures theory of regulation.
When norms fail on their own, the best system of social control often supplements
norms with law.
Social norms influence the response of citizens to law through expression, deterrence, and internalization. A better understanding of these effects, including the empirical estimation of their strength in practical situations, can improve social control by overcoming potentially crippling agency problems in the modern state.
To all of the above, Prof. Herman Selvin wrote that the decisive reason for the advance of bureaucratic organization has always been its purely technical superiority over any other form of organization.
The fully developed bureaucratic mechanism compares with other organizations exactly as does the machine with the non-mechanical modes of production.
A perfect bureaucracy operates, thus: Precision, speed, unambiguity, knowledge of the files, continuity, discretion, unity, strict subordination, reduction of friction and of material and personal costs--these are raised to the optimum point in the strictly bureaucratic administration.
Bureaucratization offers above all the optimum possibility for carrying through the principle of specializing administrative functions according to purely objective considerations.
The positive theory asserts that law is the command of a sovereign, where a sovereign is someone whom others obey and who does not obey anyone.
Generalizing, the "sovereign" becomes the process for making laws stipulated in higher level laws.
A law created by following the correct procedures has the right "pedigree."
In the modern formulation, a law regulating behavior is an effective obligation with the right pedigree.
The general problem is that credible cheap talk requires a coordination game, whereas the "game" played by most officials who interact with the public does not have this character. So the general problem is to convert other kinds of games into coordination games for public officials.
Moral commitment has a psychological element of guilt that arises from habit and conditioning.
Guilt is the subject of many psychological studies.
Moral commitment also has a rational element of belief, which is the subject of many philosophical studies.
The extent to which moral commitment is rational, however, has long been the subject of dispute.
