Law and Social Norms

Legal norms are often seen as a means to regulate individuals when self-interest does not produce the desired behavior as measured by efficiency and fairness. As Oliver Wendell Holmes, Jr. (1897) posited, laws are for the “bad man,” a man “who cares nothing for an ethical rule which is believed and practised by his neighbours.” Then, laws should matter when neither self-interest nor social norms provide the right incentives to individuals. This latter statement paves the way for a twofold argument. On the one hand, it seems to suggest that the law should regulate those areas in which social norms do not exist and provide support and extra enforcement in those areas where social norms exist. On the other hand, there seems to be no questioning of the intrinsic efficiency and fairness of existing social norms. In this chapter we discuss both issues. First, we look at the genesis of social norms and the mechanism of their enforcement. This allows a closer inspection of the efficiency and fairness concepts. In the study of social norms, “efficiency” has several standard meanings, notably Pareto efficiency, cost–benefit efficiency, and welfare maximization. “Unfairness” also has several possible meanings, but the most frequently discussed today is discrimination based on race, ethnicity, gender, or sexual orientation. In some circumstances, social norms are efficient and fair, requiring no regulation so long as private and criminal law operate in the background. In other circumstances, unregulated social norms waste resources or discriminate against individuals or groups. In principle, regulation can correct these normative failures. In practice, regulations correct failures in social norms or worsen them depending on the politics of regulation—who has power, and who benefits from efficiency and fairness. This leads us to consider the impact that introducing legal norms has in contexts in which social norms already exist and in those that social interaction has left unregulated. The main issue here is that the social norms prevailing at some historical moment may be just an equilibrium among multiple equilibriums. Given many possible equilibriums, we need to explain why and how one equilibrium is selected and others are rejected. A complete model of law and social norms encompasses the equilibriums and the selection mechanism. As we will show, the scholarship on social norms emphasizes that expressive acts in law can select the equilibrium. Legal norms seemingly reinforce existing social norms, bending them towards the law when discrepancy exists and favoring their creation where social norms do not exist. However, legal regulation can also destroy existing social norms (crowding out) or it can be defeated by them (legal backlash and countervailing effects). The law and economics analysis of social norms deals with individual preferences and the way in which these are formed. Generally, in other areas of applied economics, individual preferences are given and stable. Social norms instead depend on internalized values, not just external threats. Internalizing a social norm modifies a person’s commitment to values. Commitments to values affect personal identity, and personal identity affects a person’s understanding of his self-interest. Thus, in order to explain how social norms work, a good theory should look at how people develop “preferences,” analyzing socialization, internalization, and identity.