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.
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.
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