Yves here. It is gratifying to see economists take up the question of when laws work, and perhaps even more important, how to make laws work even when they conflict with social norms. In typical economists’ fashion, they contend that as far as businesses work, fines work but more rules don’t.
One shortcoming with this analysis is that the authors contrast imposing costs (fines) with prohibition (banning more behaviors) without specifying what the consequences of violating those prohibitions might be. A rule with no consequence will have less deterrent value than a wet noodle lashing.
By contast, bans that result in the loss of important rights can be very effective. For instance, Australia is famously boozy culture, and thus one would infer that efforts to restrict drinking would conflict with social values. Yet Australia has very serious prohibitions against driving drunk: unless you are a professional driver, like a trucker, you lose your license permanently, and professional drivers face suspensions of close to a year. And the permitted blood alcohol level is much lower than in the US, more on the order of one drink than our two.
From what I could tell, this regime appeared to be effective. Far more than in the US, I’d see people who attended parties strictly limit how much they drank if they were driving, and would also hear people mention that they had come in a cab or arranged a ride specifically so they would not have to watch how much alcohol they consumed. Even though I have been told that practice, the drunk driving punishments aren’t quite as draconian as the black letter of the law indicates, they were bad enough to scare the Sydneysiders I met into compliance.
On the corporate front, one of the important punishments meted out to BNP Paribas for its long-standing money laundering violations was suspension from US dollar clearing services. This will hurt its relationship with international customers and force it to incur extra costs with those who do not shift transactions that require dollar clearing to other banks. Many banking experts were alarmed about the use of this regulatory weapon, confirming that it can be an important deterrent.
The other obvious issue is how to shift social values when lawbreaking becomes destructively common. Unfortunately, Anglo-Saxon society has been on the receiving end of a well-funded campaign to make social norms more congruent with corporate interests. That has, among other things, led to the establishment of a “law and economics” movement, which has successfully colonized legal thinking and made considerable headway in having economic efficiency treated as more important that equity or even the rule of law itself. Similarly, the media refers to ordinary people far more often as “consumers” than as “citizens,” the opposite of the pattern in the 1960s. The growing recognition of misrule of what passes for our elites says that support for the current ideological framework is waning, even if a replacement has not yet come into being.
By Daron Acemoglu, Professor of Applied Economics, MIT and Matthew O. Jackson, William D. Eberle Professor of Economics, Stanford University. Originally published at VoxEU
Social norms shape interactions but can be in conflict with new laws, often making such laws ineffective. This column presents new research on the interplay of laws and norms. High law-breaking induces less private cooperation, increasing the law-breaking further. For a successful change in behaviour, gradual imposition of new laws is recommended. An important aspect is that these new laws should not be in a strong conflict with the existing norms.
Human societies rely on social norms for coordinating expectations, encouraging some actions and discouraging others. But once in place, norms are durable (Helliwell et al. 2014). They are powerful constraints on social interactions and may conflict with institutions and laws attempting to sanction certain behaviours. The conflict between prevailing norms and new laws often renders such laws ineffective.
A Deadly Example: Duelling in Europe
The history of duelling in Europe illustrates the power of norms in shaping the enforcement of laws.
• Duelling was outlawed in France by Louis XIII in 1626; both Louis XIII and Louis XIV vigorously sought to enforce this ban, and went so far as executing officers taking part in duels.
• But duelling – a key pillar of the social norms of French military officers and aristocrats – remained widespread and these laws went unenforced.
Estimates suggest that over 10,000 of duels among French military officers with over 4000 deaths took place during the last 30 years of Louis XIV’s reign.
The history of duelling in the 18th and early 19th century in the UK is similar. Despite bans of duelling, several leading British politicians and prime ministers engaged in it. Similarly, in the US, the former Treasury Secretary, Alexander Hamilton, was fatally wounded by the then Vice-President Aaron Burr in a duel; and the future President Andrew Jackson is reported to have taken part in several duels. Even though duelling appears to have declined in the North-eastern US after the early 19th century, the tradition remained strong for a long time in the South.
Laws against duelling were ineffective not just because they went against a deep-rooted norm among officers and citizens, but also because such bans necessitated some of the participants or witnesses to a duel to blow the whistle and inform the authorities – against their own preferences.
Smoking Regulations and Paying Taxes
While laws that conflict with norms are likely to go unenforced, laws that alter behaviour — either because they do not create too much tension with prevailing norms or because they are enforced with sufficient vigour — also change norms. An illustrative example comes from smoking regulations, which have gradually banned smoking in public places such as restaurants, movie theatres and bars, and then in shared and private offices. In the process, these regulations have changed social norms.
Many economic decisions also depend on prevailing norms. Many more people evade taxes in societies where such evasion is socially acceptable. For example, 30% of taxes were evaded in Greece in 2011, compared to only 7% in the UK. High rates of tax evasion in Greece appear to be related not only to the fact that evaders view their behaviour as ‘normal’, but also to the lack of whistle-blowing from others against the behaviour that has come to be socially acceptable.
New Research
In recent work (Acemoglu and Jackson 2014), we study the interplay of laws and norms. As in our discussion of duelling and tax evasion, whistle-blowing plays an important role in the interplay between norms and laws.
Consider the following stylised example.
• Firms make a choice, for example, about the quality of their products or what to report to tax authorities.
• Laws ban certain types of behaviour: Product qualities lower than a threshold, or not reporting transactions of more than a given amount for taxes.
• After choosing how to run their businesses, each firm matches with another firm as part of a business partnership – for instance with one supplying inputs to another, or collaborating on marketing or distribution, etc.
Business partners observe each other’s behaviour and one can whistle-blow the other about any illegal activity.
They may do so because of the negative externalities imposed on society by unreliable products, tax evasion, etc. Moreover, a mismatch between two producers in terms of product quality or how much of their business is illicit is problematic for each. For example, both sides have to take part in avoiding some forms of value-added taxes. The costs of mismatches, as well as general externalities, create incentives for businesses to whistle-blow on law-breaking partners. However, note that businesses that are law-breakers have incentives not to whistle-blow, since they are already better matched with other law-breakers, and because they may anticipate being audited and punished themselves if they whistle-blow. Because authorities may not have the resources to audit more than a small fraction of agents to enforce laws, private whistle-blowing can be central to the enforcement of laws. This implies that a society in which laws conflict with social norms will be unable to leverage private enforcement and will have less effective laws.
Our formal analysis characterises equilibria and clarifies the interaction between laws and norms. The private enforcement of laws leads to a novel source of multiplicity. When many agents break the law, there is little whistle-blowing and this encourages further law-breaking, which creates a feedback that can result in multiple equilibria – consistent with the observation that similar laws have very different levels of effectiveness across societies. Despite this multiplicity, the equilibria are relatively simple and have intuitive comparative statics. For instance, tightening a law (banning more behaviours) can lead to lower levels of compliance, while increasing fines has the opposite effect. Moreover, there is a non-monotonicity as fines are increased. Those who still break the law are those who have preferences for more extreme behaviours. Then, since law-breakers only get to break the law when they are matched with other law-breakers (as otherwise they are whistle-blown upon), the more extreme preferences among remaining law-breakers feed back to induce those who do break the law to choose even more extreme behaviours than they would when matched with agents who have more moderate preferences.
Key Findings
Our important findings include:
• Laws that are in a strong conflict with existing norms backfire.
• Abrupt tightening of laws causes significant lawlessness. Gradual imposition of laws that are more in accord with prevailing norms can successfully change behaviour and thus future norms.
The dynamic model also generates ‘social multipliers’ in law-breaking:
If there is high law-breaking, then in the next period there will be less private cooperation with law enforcement, increasing law-breaking further.
We also show how different types of laws interact: Law-breakers in one type of behaviour can then not whistle-blow on another type of behaviour as they may risk being found to be law-breaking themselves. In particular, our analysis shows how badly-designed – excessively tight – laws for one type of behaviour (e.g., small-scale drug crime in inner cities) can make laws against other types of behaviours completely ineffective (e.g., laws against larceny or gangs).
This extension thus provides a potentially new perspective on the debate on the broken windows theory of Kelling and Wilson (1982), which claimed that the high incidence of serious crime in inner cities was a result of permissive attitudes towards small-scale crimes such as vandalism, graffiti, fare-dodging on the subway, or certain types of anti-social behaviour. That theory calls for much stricter enforcement of laws against small-scale crimes, and was the inspiration of the tough policing strategies used in high-crime cities such as New York. Our theory suggests that pervasive law-breaking on such things as drugs or small-scale vandalism can indeed spill into law-breaking in other dimensions. Yet crucially, it sees the problem not in the fact that there is such behaviour in inner cities, but in the presence of laws that criminalise certain fairly common behaviours in these communities, thus criminalising a large fraction of the community. This perspective then suggests that it might be much more effective, according to our theory, to decriminalise some behaviours that have small externalities or costs to society, so that a large fraction of individuals do not automatically become law-breakers and might then have greater willingness to cooperate with law enforcement in other dimensions of behaviour of greater import to society.
See original post for references
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Yves, I thought this was a brilliant observation, or maybe I thought it was so succinctly said; anyway, it grabbed me.
Daron Acemoglu,
So, laws should reflect values. What we don’t have in this country, nor are taught how to do in our schools or universities, is how to participate in society to improve those values, which is where the great lacking is. We don’t even have the language to discuss it. It isn’t even a framework for public thinking. I doubt that 1 in 400,000 could even say that social norms are our values.
Yes, great intro by Yves. The study itself is not remarkable, however. Those lessons were learned in the 1920s with alcohol prohibition. Of course, the lessons were learned but not followed as we now see with marijuana prohibition. The real problem, as Yves and you note, is cultural and societal: our society is breaking down and anomie is becoming ever more prevalent. Probably the most successful “prohibition” campaign was regarding cigarette smoking, where numbers dropped drastically in response primarily to an orchestrated national government campaign. Today, no such campaign is even conceivable because the purposes of government have been narrowed to military/police operations and enforcing property rights. The law is a mirror not a beacon.
The lessons of prohibition were learned and applied correctly. The powers that be desire a large, criminalized underclass as potential slave labor in prisons, and as a means of inducing fear and loathing in those technocrats and middle managers who are slightly up the social ladder. Of course there are also multiple other fringe benefits to this arrangement that could be discussed as well. These are also the people who will be influencing the social norms by the way. I have to question why anyone would want to allow or approve of such an evil and duplicitous lot having a power like that honestly. The idea of “influencing social norms” from the top down makes my skin crawl.
I’m not sure if “potential slave labor in prisons” was part of the original framework of the War on Drugs, but it has certainly become an integral part of it. Private prison operators are now suing states for not keeping the prisons occupied at the levels dictated by their contracts.
Here in Alabama the state prison system has become a temporary employment agency contracting out prisoners to private companies for various types of labor.
Lambert mentioned that privatized prison lawsuit but gave a bad link. Have you seen articles you might link? Thanks.
Good place to start:
http://www.globalresearch.ca/the-prison-industry-in-the-united-states-big-business-or-a-new-form-of-slavery/8289
Well even if you don’t actually profit from the prisoners work. If you create a system where some 30% of the population is unemployed (maybe more depends on who you are counting), prison is one way to deal with that, a particularly ridiculous way. Making prisoners work for profits just tightens the screws as it makes sure a huge prison population can in no way be used to drive up wages.
A minor point:
Traditionally union contracts stipulated that there would be NO prison made goods (or that union members would not have to work with intermediate products produced by prisons). Labor leaders recognized the inherent evil in prison labor.
Interesting point. Here in Boston the City Council wanted to undermine the marijuana decriminalization referendum by banning marijuana smoking in public parks. When they got pushback they got cute and banned ALL smoking in parks. But do you really think the police will harrass elderly white people smoking cigarettes? Nope, they will use the law to target the people they don’t like in the first place.
We used to recognize in this this country that giving law enforcement unbridled discretion was a prescription for harassment and therefore a bad thing. Now nobody cares. We also once understood that standing armies and permanent war were bad things and to be avoided at all costs but now no one cares about that either. The Conservative-Libertarian model of government is fully entrenched. Government exists to serve the ruling class. Period.
I hear Yves say she sees signs of awakening. Maybe I’m too cynical but I really don’t.
“No matter how cynical you get, it is impossible to keep up.”
― Lily Tomlin
IIRC, in those jurisdictions (national, state, local) where the possession of small amounts of marijuana or other drugs (Portugal) have been decriminalized or legalized, there has been a significant reduction in all kinds of petty, and some not-so-petty crime.
The disparities in our law enforcement and judicial systems in regards to the way drug users are treated according to the color of their skin is most certainly a feature, not a bug. Nixon’s original impetus for the “War on Drugs” was a way to deal with “the Negro problem”, as he put it. Criminalizing large segments of black communities has been a very effective way of “keeping them in their place”.
It has also had zero effect on the number of users, prices, and availability.
Economists would be better off sticking to economics rather than getting into political science or sociology debates. They usually don’t do much research to see what is actually going on. For instance, what are “decriminalise some behaviors with small externalities?” It is long understood, what matters in the USA is the consensus of the white population, particularly those of white men. Verdicts are determined differently along racial lines. Just look at the racial disparities in incarceration rates based on ‘small scale drug use.’ Black and whites generally use drugs at the same rate but blacks are thrown in the slammer at much higher rates.
Social norms has a lot to do with how white Americans see the world and not necessarily based on fairness, equality or how minorities see things.
“Economists would be better off sticking to economics rather than getting into political science or sociology debates.”
That’s one way to look at it. Another way is to consider that a very great deal of the theoretical nonsense in economics could hardly be conceivable if the economist responsible for it had brought to his or her work a solid basic grounding in genetics, evolutionary biology, anthropology, sociology and moral philosophy–which latter used to be the term for what today we call “economics.” Some art history and some challenging literature and literary criticism wouldn’t be a bad thing, either.
I get your drift. It behooves us to have a critical view on what they state and what they write in the progressive domain. They carry oversized chops.
the 7% tax evasion figure in the UK is a joke. the UK makes it easy for anyone with the cash to evade taxes legally by offshoring their income, whether to Jersey, Guernsay, Isle of Mann, Gibraltar, Bermuda or a slew of any other available tax havens. I’d be surprised if the percentage of total income that evaded British taxes wasn’t greater than Greece’s when that’s taken into account.
some of the article’s conclusions are fair, such as
“Our formal analysis characterises equilibria and clarifies the interaction between laws and norms. The private enforcement of laws leads to a novel source of multiplicity. When many agents break the law, there is little whistle-blowing and this encourages further law-breaking, which creates a feedback that can result in multiple equilibria – consistent with the observation that similar laws have very different levels of effectiveness across societies.”
which is consistent with Bill Black’s Gresham Dynamic, although this assessment falls short or reaching the conclusion that persistent law-breaking encourages all players to break the laws in order to compete.
The fact that corporate law-breaking is pervasive doesn’t ever make it a social norm, though – it’s still always done in obscurity. Laws with teeth punishing such behaviour would not fall flat – any analogies with dueling are off base because honour is a powerful motivator for an individual and cannot be compared with greed, which is still powerful, but a much more risk averse motivator.
Your idea conflicts with the fact that there are plenty of laws with teeth in them that are simply not being enforced anymore. The oligarchs bought and paid for the best government money can buy, and they and their lackeys are the ones who have read the above post and are already working out ways to make (now) criminal behavior even more acceptable to the population at large.
. . . honour is a powerful motivator for an individual
Not for a bankster, for whom it would be a dishonor to not steal as much as possible.
“Laws that are in a strong conflict with existing norms backfire.”
But whose norms? This matters re the pervasive corporate criminal behavior. There is a substantial division in our society between the elite and the rest and that includes established norms.
The norms of the elite rule in terms of their rulebreaking. The norms of the rest don’t matter. Those whose norms are essentially being violated and find (or would find if completely aware) the industry law/rule breaking unacceptable and would agree with punishment don’t have a say, don’t really count. (and of course this goes along with who does it hurt?)
And how can they not backfire if there is no real substantial prosecution of violations, as the norms of the prosecutors, the regulators, are the same as the violators?
No real threat of consequence…just becomes a show from the enforcement sector with all the pretense of aggressive investigation and sanction, a public whitewash with a veil of secrecy. and for the violators, the cost of doing business.
“The norms of the elite rule in terms of their rulebreaking. The norms of the rest don’t matter. Those whose norms are essentially being violated…don’t really count.”
You nailed it there.
We also know from sociological studies that the affluent are more willing to violate rules for their own benefit than the rest of us. There is good evidence, in other words, that the norms of the elite are not the norms of everyone else. And as you say, our norms don’t really count.
I’m reminded of something I read recently, about how shocked the native inhabitants of this land were when our ancestors repeatedly signed and then violated their “sacred” promises (treaties). It was literally unimaginable for Indian people that someone would have so little concern for their honor that they would nonchalantly violate oaths they had solemnly made just a short while before. That kind of behavior was simply mind-blowing.
I feel like a lot of US citizens are in that same boat right now. A lot of people simply cannot imagine that our elites would have so little concern for ethics or common decency, that they could so blatantly lie and deceive the populace. But just like those cavalry generals of old, our elites swear up-and-down that they have the best interests of everyone at heart…right before they begin the pillaging and the looting.
Elite norms have to be changed. Nooses might do the trick. In MT territory, back in the day, we neck-streched quite a few horse-rustlers in rather pre-emptory fashion. There were some complaints of over-reach, but the results spoke for themselves: horse theft became (and remains) much less of a problem. Unfortunately, the same example was not set for malfeasance of the more corporate kind.
“nonchalantly violate oaths they had solemnly made” is still blowing minds.
I intended to name a few examples … but, is there anybody with an iota of power who does not persistently, callously lie?
…”And how can they not backfire if there is no real substantial prosecution of violations, as the norms of the prosecutors, the regulators, are the same as the violators?”
Ka-Bam! How can they not backfire?, indeed! “+ 1” from this reader.
Fifty years ago I graduated from a top tier college with a degree in economics. I achieved grades placing me at the first rank in the department, but what I learned is that no mainstream economist has anything valuable to contribute on any subject, least of all efficiency or morality. While this was disappointing, it has turned out to be a very valuable lesson. Read Keynes, Veblen, Marx and Henry George all of whom are pariahs to the economics establishment. Ignore everyone else.
The role of conventional conomics is to justify.indefensible behavior by wealthy individuals and institutions. We would be better off studying the Bible, while of course ignoring those corrupt institutions and charlatans who use it against us like jujitsu.
Great point. Macro- and perhaps micro-economics are servants to policy makers and investors. Ideas and models are framed so as to reflect their concerns and interests.
But where is the economics of poor people?
By the way, much of business studies in B-schools went through the same bias. However, the sociology types infiltrated some of the academic fields in business [except finance] and somewhat corrected this “listing.” At least parts of academic business realize there is a bias towards top management and investors — and try to overcome it.
“Anglo-Saxon society?” Do you mean by this “Anglophone” society? I haven’t noticed, for example, that non-WASP people in English speaking countries are less subject to corporate propaganda than their WASP counterparts. Sorry for the OT comment, but it reminded me a bit of my 4th grade teacher who earnestly explained to us children that “real” American culture was WASP culture, and that the genius of “Americanization” of immigrants from filthy, uncouth cultures like the south of Italy, was that, after several generations, people with surnames like LaGuardia could come close to achieving the high cultural standards that people with surnames like Cooper or Smith enjoyed as their birthright.
WASP culture? That’s boarding schools, golf links, narrow ties, flip hairdos and alcoholism, right?
I agree with J Gordon and John. I also think the essay had a too high words to meaning ratio to digest.
Maybe what was being asked was “when do people of middling honesty tend to follow the law and when do they tend to break the law”. That is an interesting and clear question, and there is the related question of people changing their behavior due to propaganda and harassment campaigns organized from the top, without the legal code being altered much, as happened with smoking.
Actually I think the ability of the elites to use propaganda, rather than relying strictly on legal sanctions, is a key part of the question. Another factor is the underlying legitimacy of the government. The third is the ability to inflict extensive punishments on lawbreakers, though this has to be tempered. Governments with an extensive punishment apparatus will start to use it against random normal people, meaning that actually breaking the law doesn’t necessarily make one more vulnerable to punishment. This undermines legitimacy, leading to a crime wave when the boot is lifted. Similarly propaganda works great until it is overused and suddenly stops working.
A related and fascinating question is the willingness of ordinary citizens to blow the whistle or snitch on each other.
It is more than just social norms. Laws/regulations that go against common sense, especially where harm is concerned, struggle. This is true of copyright infringement–people are used to sharing (social norm) and recognize that sharing has been the basis of cultural progress since we had “culture”. And, they also realize that the harm supposedly prevented by the laws does not exist or is so disproportionately low versus a culture of permission.
However, note that businesses that are law-breakers have incentives not to whistle-blow, since they are already better matched with other law-breakers, and because they may anticipate being audited and punished themselves if they whistle-blow. Because authorities may not have the resources to audit more than a small fraction of agents to enforce laws, private whistle-blowing can be central to the enforcement of laws.
Banksters never blow whistles. They blow each other.
“Law-breakers in one type of behaviour can then not whistle-blow on another type of behaviour as they may risk being found to be law-breaking themselves.”
^That same dynamic also applies to corporate America.
It doesn’t matter if you are an employee or a manager; if you report the misdeeds of others you better expect them to do the same to you. And if you work in a corporate culture that is full of conflicts of interest and unethical decisions, you can safely assume you are linked to something awful. The risk you take for doing the right thing is huge and it is the reason internal reporting is an utter joke.
“In typical economists’ fashion, they contend that as far as businesses work, fines work but more rules don’t.
“One shortcoming with this analysis is that the authors contrast imposing costs (fines) with prohibition (banning more behaviors) without specifying what the consequences of violating those prohibitions might be. A rule with no consequence will have less deterrent value than a wet noodle lashing.
“By contast, bans that result in the loss of important rights can be very effective.”
Absolutely. In addition, psychology indicates the the certainty of punishment is more effective than the degree of punishment. This, OC, is in conflict with the idea that expected cost of punishment is the key variable. It also suggests that, just as we send undercover agents into street gangs, we should send undercover agents into corporations.
So evolution. Can’t we just all do 50-year plans?