The Law and Economics of Norms

Abstract

This Article examines the increased importance of norms in the law and economics of exchange. By studying how private parties bring order despite the absence of a coercive state and the idea of a norm as the result of an exchange that originates in the brain to accommodate all competing costs, one can better understand how modern states, private agreements, public laws, and market economies work in conjunction with the norms and human behavior patterns that underlie all communities. These institutions of norms, public law, private law and agreements, the state, and markets are all alternative and complementary ways of (and sometimes substitutes for) addressing the same problem of social ordering to maximize welfare. The core argument is that parties are driven by cost minimization to select the best mix of institutional supports for the facilitation of exchange and that cost minimization strategy should guide courts in determining whether to provide legal sanctions to norms.

Keywords: norms, law and norms, law and economics, cost minimization, self-enforcing norms, social enforcement norms, contratcs, private agreements

JEL Classification: K00, K12