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  {\bf   Law and Economics  and  Norms } \\  



 \bigskip

First draft: April 7, 2003.    This draft: April 14, 2003 \\



 



Richard McAdams and Eric Rasmusen \\



 



{\it Abstract}

\end{center}

 Social norms became  a hot topic in law-and-economics  in  the

1990's.  Everyone realizes their importance, both as a guide to

behavior and as either substitute or complement for law. Coming up

with a paradigm for analyzing norms, however, has been surprisingly

difficult, as has systematic empirical study of them. In  this chapter

of the   {\it Handbook of Law and Economics},

edited by A. Mitchell Polinsky and  Steven Shavell  and forthcoming in

2004, we will try to survey what has been written.

 



 We don't have a paper yet, but these notes will be the basis for my

April presentation.  We are  particularly  interested in

suggestions for   the survey's organization  and in  links to

literatures in

other disciplines.   Richard McAdams has not even seen these

notes yet.



 



\noindent

  \hspace*{20pt} 

McAdams: Guy Raymond Jones Professor of Law, University of Illinois

College of Law,   \\

\hspace*{20pt}   Rasmusen: Indiana  University Foundation Professor,

Department  of Business Economics and Public Policy,

  Kelley School of

Business,Indiana University.   Copies of this  can be found at

Php.indiana.edu/$\sim$erasmuse/papers/norms.pdf.  

  



 





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\newpage



 



   Oliver Wendell Holmes Jr.:



``You can see very plainly that a bad man has as much

reason as a good one for wishing to avoid an encounter with the public

force, and therefore you can see the practical importance of the

distinction between morality and law.  A man who cares nothing for an

ethical rule which is believed and practised by his neighbors is

likely

nevertheless to care a good deal to avoid being made to pay money, and

will want to keep out of jail if he can.'' 



 

   This is also the essay, however,   which says,  

``For the rational study of the law the blackletter man

may be the man of the present, but the man of the future is the man of

statistics and the master of economics.'' 



  \newpage

    

  





\begin{tabular}{lllll}

 Time   &  Econlit   &  Lexis,  &     Lexis  & Lexis,  \\

 Period &  ``norms'' &   ``norms''  &     ``norms''     &

``Jones'' \\

 & & normalized&raw  &in author\\

 & & & &\\

\hline

 & & & &\\

 2000-4/2003:  &67  (103) & 256   &166 (256)  & 391 (602)\\

1995-1999: & 139 & 178  &155&525\\

1990-1994: & 86& 95  & 38& 241\\

1985-1989: &  36 &78 &13& 100\\

 1980-1984: & 9 & 108 &7&39\\

 1975-1979:  &8 & 0&0&5\\

 1970-1974:  &9 & -& -& \\

 & & & &\\

\hline

\end{tabular} \\

  Number in parentheses are converted to 5-year rates by

multiplying by

1.54. The normalized Lexis rates adjust for the increase in coverage

by multiplying the 5-year rates by 602/Jones$_{year}$. 

 \begin{center}

{\bf Table 1:  Number of Articles with ``Norms'' in the Title}

  \end{center}



  \newpage

 

{\bf Business custom: }

\begin{itemize}

\item Stewart Macaulay (1963)  ``Non-Contractual Relations in

Business,''

{\it American Sociological Review}, 28: 55-70 (February 1963). 73

cites.



\item 

 Lisa Bernstein   (1992) ``Opting Out of the Legal System: Extralegal

Contractual Relations in the Diamond Industry,''  {\it Journal of

Legal Studies},   21: 115 (1992). 81 cites.

\end{itemize}



{\bf General theories of norms with specific applications:}   

\begin{itemize}

\item

 Robert   Ellickson   (1991)  {\it Order without Law: How Neighbors

Settle Disputes}. 185 cites.





\item 

 Richard    McAdams (1997) ``The Origin, Development and Regulation of

Norms,'' {\it  Michigan Law Review}, 96: 338-433. 168 cites.



\item

Eric A. Posner  (2000) {\it Law and Social Norms},  Harvard University

Press.   174 cites.

\end{itemize}





\newpage

 

\vspace*{-1in}

 

\noindent

{\bf 3.   How norms work}



  



\noindent

  a. {\it Coordination. } These norms are self-enforcing.  Driving on

the right side of the

road is an example.   



\noindent

 b. {\it Signalling. }  Certain actions may signal qualities of the

signaller  such as intelligence, care,

cooperativeness (Eric Posner's point),  and forward-lookingness.  



 

\noindent

 c   {\it Internalization. Guilt. } People may, for one reason or

another, obey norms even if an infraction would not be noticed by

anyone else.  One motive is guilt: a feeling of disutility arising

from the action itself.    Guilt can actually be useful to the person,

because fear of it can help him restrain himself.



 

\noindent

  d. {\it Internalization. Shame. }    Shame is a feeling

that one has lowered oneself. It focusses on oneself, not on outside

perceptions (signalling or disesteem) or the act (guilt).  



 

\noindent

 e. {\it Disesteem. }   People dislike  disapproval,

whether deserved or not (distinguishing this  from shame and

guilt)

and regardless of      beliefs about their

characteristics (distinguishing this from signalling).

People might disapprove   either because the norm-breaker

harms them  or  simply because he breaks the norm.  



 

\noindent

 f.   {\it Bilateral external enforcement. }  The injured person

punishes the

norm-breaker.   



 

\noindent

 g. {\it Multilateral external enforcement. }  People punish the norm-

breaker

even if they themselves were not harmed by him.  





 







\newpage



\noindent

{\bf 7. Specific applications}



{\bf  a. Contract law.} Macaulay noted that businesses usually do not rely

on the law. UCC approach to custom. The 18th century development of

commercial law. Common law as institutionalized norms. Warranties as

relying on norms, not on fine print.



{\bf b. Lisa Bernstein on diamonds and cotton}--- a methodological example

widely cited.



{\bf c. Tort law.} Norm definition of negligence, as compared with the Hand

explanation. Medical malpractice.



{\bf d. Property law.} Nuisance, and coming to the nuisance.  Henry Smith

idea on numerus clausus-- coordination on a few definitions of

property.



 {\bf e. Littering and recycling.} Two areas that feature prominently in the

norms literature.



 {\bf f. Constitutional law.} A constitution cannot itself be based on law--

it is based on norms. The British constitution-- existing, but

unwritten.



{\bf g. Morals law.} Sex, divorce,   and drug laws, and how they relate to

norms.



{\bf h. Race law.}  Similar to morals law in being closely entangled with

norms specific to a time and place.  The clearest  example of norm

engineering.





  



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