Norms, Repeated Games, and the Role of Law

Abstract:     
One of the major developments in legal scholarship over the last decade has been a shift of attention away from formal legal rules toward informal, decentralized methods of social control, or social norms. Many scholars suggest that social norms, not legal rules, are the mainstay of social control. Such a view requires a theory of why individuals would follow norms against their immediate self-interest without threat of formal legal sanction. In seeking an explanation, the norms literature draws heavily on the game theoretic idea that individuals follow norms because of the possibility of community retaliation. Norms scholars express concern, however, that such threats are not credible because there is a free rider problem in inducing community members to engage in costly enforcement. We demonstrate that this "third-party enforcement problem" is, in fact, illusory. Yet there are other important reasons for skepticism about game theoretic approaches to social control that norms scholars have not recognized. We highlight the "counterfactual problem": the fact that the game theory of norm enforcement requires individuals to continue to believe that their community has adopted the norm even in the face of proof that this belief is false. The counterfactual problem opens up avenues for law that the literature has not yet identified. We contend that law does not enter simply to help players arrive at a normative equilibrium, but is required to sustain that equilibrium. This observation has the virtue of consistency with actual patterns of law enforcement.

Keywords: social norms, game theory, repeated games, counterfactual problem, third-party enforcement problem, subgame perfection, tit-for-tat, def-for-dev, grim strategy

Accepted Paper Series