On the Complementarity between Law and Social Norm: A Model Analysis with Special Reference to the Liability Rule for Tort
Osaka University - Institute of Social and Economic Research Discussion Paper No. 765
18 Pages Posted: 18 Jan 2010
Date Written: January 6, 2010
How the law and the social norm interact with each other in the legalized modern society, whether the law completely replaces the pre-existing social norm or they coexist, and whether their interaction achieves an efficient system of social rules or there is innate inefficiency, have remained obscure until today. This article provides an analytical model to clarify the interrelationship between the law and the social norm. We show that, where both the law and social norm maximize social welfare, their non-cooperative interaction attains Pareto efficiency and that they are perfect substitutes to each other. We then consider the case where social norm is determined on the basis of some misperceptions and show the possibility that an inefficient social system may persist. Furthermore, we illustrate the possibility that law and social norm are complements to each other and that the existence of the government could be second-best.
Keywords: social norm, strict liability, wealth maximization, Nash equilibrium
JEL Classification: K00, K13
Suggested Citation: Suggested Citation