Norms, Repeated Games, and the Role of Law
Chris William Sanchirico
University of Pennsylvania Law School; University of Pennsylvania Wharton School - Business Economics and Public Policy Department
Paul G. Mahoney
University of Virginia School of Law
UVA Law and Economics Research Paper No. 02-3
In drawing on the theory of repeated games, norms scholars have devoted much attention to the so-called third-party enforcement problem: the seemingly inevitable reluctance of members of a community to carry out their implicit threat to punish deviators. We argue that the third-party enforcement problem - as currently represented in the literature - is illusory. To be sure, third party enforcement is always a problem for tit-for-tat, the norms literature's canonical example of a cooperation-sustaining strategy. The problem is not, however, endemic to strategies that support cooperation. Thus, we propose re-focusing on an alternative strategy, which we call def-for-dev (defect-for-deviate). Under def-for-dev third parties find it in their interest to punish deviators lest they themselves be labeled as deviators in future rounds.
Although the third-party enforcement problem as conceived of in the literature is illusory, there is still reason for skepticism about the application of mainstream repeated game theory to law and norms. We highlight the counterfactual problem: the fact that the theory of games requires that players continue to believe that other players have adopted a particular equilibrium strategy even off the equilibrium path, when it is evident that this belief is false. The counterfactual problem opens up avenues for law that the literature has not yet identified. We contend, for example, that law does not enter simply to help players arrive at the cooperative equilibrium, but is required to sustain that equilibrium. This observation has the virtue of consistency with actual patterns of law enforcement.
Number of Pages in PDF File: 67
Date posted: May 16, 2002