Comparative Law and Economics: Accounting for Social Norms

Recent comparative law and economics literature utilizes quantitative methods to evaluate the effectiveness of alternative laws and legal institutions. The effectiveness of the law critically hinges upon compliance. Legal policymakers announce the consequences of a violation of law by threatening sanctions or promising rewards. The extent to which sanctions or rewards are actually imposed depends on the level of legal enforcement. Legal policymakers create incentives for compliance by selecting the severity of legal sanctions or the magnitude of rewards and by setting levels of legal enforcement. Deterrence theory assumes that higher expected punishments (the combination of severity and probability of punishment) produce higher detererrence. Enforcement is generally imperfect since not all behavior is observed; hence sanctions and rewards are administered with uncertainty. The expected legal sanction (reward) affects individual private incentives through a change in expected costs (benefits) of legal compliance. Deterrence theory assumes that individuals make a calculated and rational decision, weighing the pros and cons of specific activities under the law. Note however that many acts are committed under exceptional circumstances and a rational calculation of costs and benefits may be overshadowed by other contingent factors.Whether through threats or promises, the effects of the law depend on the actual level of enforcement. Legal theorists believed that a law without enforcement was equivalent to a law without a sanction (lex imperfecta) and was doomed to be ineffective. However, recent legal and economic literature has shown that the effects of a law are not limited to the creation of incentives through the enforcement of legal sanctions. Law conveys social values to society. According to expressive law theories and focal-point theories of law (Cooter, 1998 and 2000; McAdams, 2000a, 2000b), law plays an expressive role in society. To the extent that the values expressed by the law are internalized, private enforcement and compliance becomes possible even in the absence of central legal enforcement. Self-compliance stems from the internalization of the rule and the resulting first-party enforcement.Individual values and social norms of conduct influence human behavior. Personal values represent an individual's expressed value judgments identifying what someone should and should not be allowed to do. Individuals willfully behave according to their personal values and impose sanctions on violators of private norms. Personal values and norms provide private incentives to individuals, affecting the payoff associated with a given behavior. Alternatively, social norms identify frequency distributions of individual values and norms in the population, indicating private values and norms more frequently adopted by individuals in the population. Hence, the exogenous restrictions imposed by legal rules may not be the only driving force behind individual behavior; an individual's choices are also substantially influenced by private and social norms.The present contribution examines the determinants of self-compliance with rules in the absence of legal enforcement. Self-compliance with the law refers to the effects of first-party enforcement, where individuals withhold action because of their preference for law-abiding behavior, even if the rule lacks external enforcement. Current legal and economic theory adopts the term “first-party enforcement” to refer to situations where the subject of the law faces a conditional cost in case of violation of the law under the form of guilt or shame. These conditional costs stem from an honor system of "upright conduct," in which compliance with the rules stands as an ethical imperative.