Law and Economics Discovers Social Norms

Author(s): Robert C. Ellickson

Source: The Journal of Legal Studies , Vol. 27, No. S2 (June 1998), pp. 537-552
Published by: The University of Chicago Press for The University of Chicago Law School
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 LAW AND ECONOMICS DISCOVERS
SOCIAL NORMS
ROBERT C. ELLICKSON*

Abstract
Although Ronald Coase, Guido Calabresi, Richard Posner, and the other founders
of classical law and economics accomplished much, they exaggerated the role of
law in the overall system of social control and, conversely, underestimated the im-
portance of socialization and the informal enforcement of social norms. They also
implicitly placed too much stress on individuals’ hunger for material, as opposed
to status, rewards. The upsurge in the 1990s of scholarly interest in socialization,
norms, and status does not threaten the demise of classical law and economics but
rather promises to enrich it.

L et us start with a sociological analysis of this symposium itself. My arti-

cle is shorter than most of the other contributions. Should I be criticized for
this apparent act of deviancy? I assert an adequate justification. From the
outset, the organizers of this symposium assigned participants to either of
two roles. On the one hand, they assigned most to the role of full contribu-
tor, which implicitly required an article of the length and depth attained
elsewhere in this issue. On the other hand, the organizers excused Richard
Posner and me from the task of presenting a paper at the conference ses-
sions and instead asked each of us to provide wrap-up remarks at the close
of the proceedings. Posner and I were accorded these pooh-bah roles, I as-
sume, because we are the most senior of the participants. Because I endorse
the hypothesis that a norm tends to enhance the welfare of the members of
a group that adopts it, to clinch the justification for my brevity, I should
defend the adaptiveness of an academic norm of honoring one’s elders. An
attractive, but implausible, argument for this norm is that advancing age
enhances one’s ability to make Olympian comments.1 A more credible ex-

* Walter E. Meyer Professor of Property and Urban Law, Yale Law School. I thank Julie
Becker for research assistance.
1
While experience increases with age, imagination declines. See Richard A. Posner,
Aging and Old Age 67–70 (1995). Because Olympian comments are synthetic, they tend to
be products more of imagination than of experience.
[ Journal of Legal Studies, vol. XXVII ( June 1998)]
 1998 by The University of Chicago. All rights reserved. 0047-2530/98/2702-0012$01.50
537

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538 THE JOURNAL OF LEGAL STUDIES

planation is that academicians have developed an informal system of life-

cycle compensation that tends to underreward the young and overreward
the old—a system common elsewhere in the economy.2 To be sure, various
‘‘norm entrepreneurs’’—Cass Sunstein’s helpful phrase3 —have been pres-
suring our activist governments to undermine the traditional norm of defer-
ence to elders. A federal statute, for example, attempts to foster age-neutral
work assignments.4 Perhaps the members of the ‘‘New Chicago School,’’
who organized this symposium and invented their moniker on its occasion,
will take heed of the lawmaker’s inability to influence how the organizers
themselves assigned roles for the symposium.
Hewing to my assigned role, I offer a few overarching comments on the
current state of legal scholarship on social norms. I argue that the newly
found appreciation of norms is likely to cause the significant redirection of
law and economics, although hardly its abandonment.

I. The Destabilization of Classical Law and Economics

A. The Kuhnian Perspective

Thomas Kuhn’s The Structure of Scientific Revolutions, first published in
1962, provides an enduring framework for analyzing the evolution of schol-
arly paradigms.5 Kuhn argued that in ordinary times most members of a
discipline pursue ‘‘normal science’’—interstitial refinements within the
prevailing mode of thought. Because any paradigm oversimplifies, how-
ever, researchers increasingly find inexplicable ‘‘anomalies’’—phenomena
irreconcilable with the paradigm. The accumulation of serious anomalies
slowly destabilizes the theory and eventually builds to a crisis. The crisis
prompts scholars (according to Kuhn, mostly younger scholars, who are
less locked into old ways of thinking)6 to offer fresh paradigms capable of
accounting for the anomalies. The newly offered paradigms compete for
center stage, and eventually members of the discipline embrace one of them
and throw over the old approach. Normal science then commences under
the new paradigm. This slowly generates another set of anomalies, and the
cycle repeats itself.

2
See Edward P. Lazear, Agency, Earnings Profiles, Productivity, and Hours Restrictions,
71 Am. Econ. Rev. 606 (1981) (arguing that this system deters the young from shirking).
3
Cass R. Sunstein, Social Norms and Social Roles, 96 Colum. L. Rev. 903, 909 (1996).
4
Age Discrimination in Employment Act of 1967, 29 U.S.C. §§ 621–34 (1994).
5
Thomas S. Kuhn, The Structure of Scientific Revolutions (2d. ed. 1970).
6
Id. at 90.

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 LAW AND ECONOMICS DISCOVERS SOCIAL NORMS 539

Kuhn’s framework can be applied to the situation of classical law and

economics—the paradigm developed by Ronald Coase, Guido Calabresi,
Posner, and others in the 1960s and 1970s. The core of this paradigm was
borrowed from economics. It consists of methodological individualism (the
assumption that individuals are the only agents of human action) and the
assumption that individuals are self-regarding and rational. The next section
identifies some important phenomena that the classicists overlooked. Under
the Kuhnian framework, the thesis that classical law and economics is in
for significant change could be stated in either strong or weak form. The
strong version is that the newly discovered phenomena are anomalies that
ultimately cannot be reconciled with the classical paradigm and will lead to
its demise. The weak version of the thesis asserts that normal science within
law and economics can accommodate these phenomena, which are lacunae,
not anomalies. I argue in support of this weaker version.7 Because the over-
sights of classical law and economics were major, however, that paradigm
is now in for a turbulent and productive period of normal science.

B. Lacunae in Classical Law and Economics

In their early works, Coase, Calabresi, and Posner all addressed some sit-
uations where informal social controls might be more influential than legal
rules. Norms, however, were simply beyond their field of reckoning. This
is understandable, because those paladins had many other battlements to
charge. Nonetheless, in retrospect, the classicists’ analysis of social dynam-
ics seems thin. Three deficiencies stand out.8 By exaggerating the reach of
law, they underrated two other major sources of order: internally enforced
norms (socialization) and externally enforced norms. In addition, they paid
too little heed to the human pursuit of status. The overlooked phenomena
are lacunae, not anomalies, however, because they are potentially reconcil-
able with both methodological individualism and the assumptions that indi-
viduals are rational and self-interested.
A Neglect of Socialization. Much human effort is devoted to child rear-
ing, schooling, and other systems of socialization. According to the stan-
dard sociological account, socialization brings about the internalization of

7
See also Robert C. Ellickson, Bringing Culture and Human Frailty to Rational Actors:
A Critique of Classical Law and Economics, 65 Chi.-Kent L. Rev. 23, 24–26 (1989) (advanc-
ing a similar argument).
8
This list hardly is exhaustive. In another context, a reformer of the economic paradigm
might stress the limits of human cognitive capacities or psychological phenomena such as
loss aversion that are difficult to reconcile with rationality.

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540 THE JOURNAL OF LEGAL STUDIES

norms, which an individual then enforces on himself by means of self-

administered feelings of guilt and pride. Economists, not to mention prac-
titioners of classical law and economics, traditionally have paid little or no
attention to the socialization process. Instead, they standardly have treated
individual tastes as exogenous.9 Because they also assume self-interested
behavior, economists traditionally have had difficulty explaining why indi-
viduals give to public radio, control their littering, leave tips at roadside
restaurants, return items to a lost-and-found, and otherwise cooperate when
a rational, unsocialized person would not. Like virtually all legal scholars,
the founders of classical law and economics featured unsocialized individu-
als in their analyses of hypothetical legal problems.10 While this approach
had the distinct virtue of making an analysis universally relevant, it surrep-
titiously suppressed the role of socialization and, as a result, exaggerated
the role of law.
A Neglect of Socially Enforced Norms. Much of the glue of a society
comes not from law enforcement, as the classicists would have it, but rather
from the informal enforcement of social mores by acquaintances, bystand-
ers, trading partners, and others. These unofficial enforcers use punishments
such as negative gossip and ostracism to discipline malefactors and boun-
ties such as esteem and enhanced trading opportunities to reward the
worthy.
Informal systems of external social control are far more important than
law in many contexts, especially ones where interacting parties have a con-
tinuing relationship and little at stake. The pioneers of classical law and
economics were not attuned to this. For instance, Coase’s central example
in The Problem of Social Cost dealt with the allocation of the risk of cattle
trespass between a farmer and a rancher who owned adjoining lands.11 Al-
though Coase invoked this scenario solely to illustrate a hypothetical world
of zero transaction costs, his discussion misleadingly implied that rural
neighbors in fact would look to formal law to determine who bears the risk
of trespass by livestock. In fact, they rarely do.12 These neighbors have con-
tinuing relationships, and cattle trespass seldom involves large stakes. As a
result, in this context neighbors apply social norms rather than turning to
the legal system. In a similar manner, in their brilliant article on the struc-

9
This is changing. See, for example, Gary S. Becker, Accounting for Tastes (1996).
10
See, for example, Guido Calabresi, The Costs of Accidents 73–75 (student ed. 1970)
(asocial discussion of a person’s decision to install better brakes on car); Ronald H. Coase,
The Problem of Social Cost, 3 J. Law & Econ. 1–8 (1960) (asocial discussion of resolution
of risk of cattle trespass); Richard A. Posner, Economic Analysis of Law 10–11 (1st ed.
1972) (asocial discussion of property rights in land).
11
See Coase, supra note 10.
12
Robert C. Ellickson, Order without Law 52–64 (1991).

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 LAW AND ECONOMICS DISCOVERS SOCIAL NORMS 541

ture of legal entitlements, Calabresi and Douglas Melamed penned socio-

logically myopic sentences such as, ‘‘If Taney owns a cabbage patch and
Marshall, who is bigger, wants a cabbage, he will get it unless the state
intervenes.’’ 13 What? Can only the state prevent an onlooker from taking
candy from a baby? Since the collapse of the Soviet Union in 1991, Russia
has lacked an effective law-enforcement system. Legal centralists might
ponder how Russian society has continued to function—fitfully to be
sure—with its legal system in ruins.
A Neglect of the Human Quest for Status. Besides slighting these two
basic forms of social control, the classicists implicitly fostered an exces-
sively materialistic conception of human tastes. Although conventional eco-
nomic theory supposes that an individual can obtain utility from any sort of
experience, economists (and practitioners of classical law and economics)
traditionally have paid little heed to the eagerness with which people pursue
social status. The classicists’ depictions of how people would behave in
particular settings therefore tend to be misleading. To provide only one of
many possible examples, Coase’s vignette of the farmer and the rancher
presents a calculus in which only the monetary costs of fencing and the
monetary value of crops are relevant. In fact, ranchers are keenly concerned
about where ranchers as a group stand within the larger social hierarchy,
and each rancher is sensitive to his intragroup status as well. These con-
cerns affect their handling of cattle-trespass risks.14 Law-and-economics
scholars are only beginning to explore to what extent the legal system can
itself either confer status or regulate informal systems of status production.15
Denizens of universities, where differentiation of titles is as baroque as un-
der High Feudalism, should appreciate the possible seriousness of this
omission.

C. Evidence That These Lacunae Are Major

Two quite different forms of evidence suggest the seriousness of these
oversights of classical law and economics. First, scholars in many disci-
plines increasingly are emphasizing the significance of the informal glue
that holds a society together. Second, analysis of two selected problems—
the implied warranty of habitability and the increase in out-of-wedlock

13
Guido Calabresi & A. Douglas Melamed, Property Rules, Liability Rules, and Inalien-
ability: One View of the Cathedral, 85 Harv. L. Rev. 1089, 1091 (1972).
14
Ellickson, supra note 12, at 25, 114–20.
15
Two pioneering works are Richard H. McAdams, Cooperation and Conflict: The Eco-
nomics of Group Status Production and Race Discrimination, 108 Harv. L. Rev. 1003 (1995);
and Richard H. McAdams, The Origins, Development, and Regulation of Norms, 96 Mich.
L. Rev. 338 (1997) (developing an esteem theory of norms).

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542 THE JOURNAL OF LEGAL STUDIES

births—demonstrates how recognition of the presence of norms can use-

fully enrich legal analysis.

1. The Explosion of Scholarly Interest in Norms

Sociologists have long studied the creation, transmission, and enforce-
ment of norms as well as the pairing of norms with social roles. The field
of sociology, however, has not had much influence on the scholars in other
disciplines who have recently become interested in norms. Partly because
sociologists themselves have been unable to coalesce around a dominant
paradigm,16 the alien newcomers have had difficulty finding much worth
borrowing. In addition, because sociology stresses how social forces limit
an individual’s choices, sociologists traditionally have seen informal groups
and cultures as operative engines. This methodological wholism bewilders
economists and other devotees of methodological individualism.17
Beginning in the late 1980s, however, James Coleman and others orga-
nized a self-conscious subdiscipline of rational-choice sociology.18 Its mem-
bers are ideally situated to fertilize the research on norms being conducted
by the many rational-choice scholars situated in disciplines outside sociol-
ogy. Philosophers, for example, have been inquiring into conventions and
norms.19 Game theorists and evolutionary biologists have been probing the
social conditions that foster cooperative behavior.20 Economists, ever impe-
rial, have begun to explore norms and status seeking.21

16
See Kenneth G. Dau-Schmidt, Economics and Sociology: The Prospects for an Interdis-
ciplinary Discourse on Law, 1997 Wis. L. Rev. 389, 399.
17
See id. at 400–402; but compare Douglas D. Heckathorn, The Emergence of Norms,
Strategic Moves, and the Limits of Methodological Individualism (unpublished manuscript,
Univ. Conn., February 26, 1997) (urging the blending of methodological individualism with
methodological wholism into an interactive model that reveals how social actors create and
are created by systems of social norms).
18
See, especially, James S. Coleman, Foundations of Social Theory (1990) (his magnum
opus), and Rationality and Society, a journal Coleman founded in 1989. Compare Amitai
Etzioni, The Moral Dimension: Toward a New Economics (1988) (exemplifying a kindred
strand of sociological analysis).
19
See, for example, David Gauthier, Morals by Agreement (1985); Edna Ullmann-
Margalit, The Emergence of Norms (1977).
20
See, for example, Robert Boyd & Peter J. Richerson, Culture and the Evolutionary Pro-
cess (1985); Russell Hardin, Collective Action (1982); John Maynard Smith, Evolution and
the Theory of Games (1982); Elliott Sober & David Sloan Wilson, Unto Others: The Evolu-
tion and Psychology of Unselfish Behavior (1998).
21
See, for example, George A. Akerlof, A Theory of Social Custom, of Which Unemploy-
ment May Be One Consequence, 94 Q. J. Econ. 749 (1980); B. Douglas Bernheim, A Theory
of Conformity, 102 J. Pol. Econ. 841 (1994) (developing model in which individuals value
status); and Robert H. Frank, Choosing the Right Pond: Human Behavior and the Quest for
Status (1985); see, generally, Robert Sugden, The Economics of Rights, Cooperation, and
Welfare (1986).

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 LAW AND ECONOMICS DISCOVERS SOCIAL NORMS 543

Like law professors, political scientists traditionally have specialized in

the workings of governments—the public institutions that promulgate and
enforce legal rules. It is notable, then, that prominent political scientists
with diverse interests and approaches have begun to stress the role of infor-
mal social controls. Examples include the work of Robert Putnam on social
capital, of Robert Axelrod on cooperation, of Jon Elster on norms, and, in
a somewhat more remote vein, of the political theorists who are reviving
the republican political theory that stresses a citizen’s moral obligations to
contribute to his or her community.22
Most pertinently, in the mid-1990s norms became one of the hottest top-
ics in the legal academy.23 With the inclusion of this one, there have been
at least four major symposium issues on the subject.24

2. How the Consideration of Norms Can Enrich Policy Analysis

This interest in norms may turn out to be fleeting. To bolster the case
that it will not be, I offer two examples of how the appreciation of informal
social controls can fundamentally alter analysis of a social problem.
The Implied Warranty of Habitability. According to the leading prop-
erty casebooks, the development of an implied warranty of habitability was
the capstone of the significant changes in landlord-tenant law that occurred
during the 1965–75 period.25 Prior to this legal innovation, the doctrine of
caveat lessee applied to ordinary residential tenancies. If water suddenly
were to begin dripping from a tenant’s ceiling, caveat lessee would deny
the tenant the right either to withhold a portion of the rent or to compel
the landlord to repair the leak. The conventional account implies that, by
supplanting caveat lessee with an implied warranty of habitability, courts
and legislatures transformed relations between landlords and residential ten-
ants.

22
See Robert D. Putnam, Making Democracy Work: Civic Traditions in Modern Italy
(1993); Robert Axelrod, The Evolution of Cooperation (1984); Jon Elster, The Cement of
Society (1989); and, for example, Michael J. Sandel, Democracy’s Discontent (1996) (urging
revival of civic republicanism).
23
For a more thorough review of the emerging legal literature, see Richard H. McAdams,
Comment: Accounting for Norms, 1997 Wis. L. Rev. 625.
24
Symposium, Law, Economics, and Norms, 144 U. Pa. L. Rev. 1643 (1996); Sympo-
sium, Law and Society & Law and Economics, 1997 Wis. L. Rev. 375; Symposium, The
Nature and Sources, Formal and Informal, of Law, 82 Cornell L. Rev. 947 (1997). See also
Special Issue on Mediating Institutions, 61 U. Chi. L. Rev. 1213 (1994); Symposium: The
Informal Economy, 103 Yale L. J. 2119 (1994).
25
See, for example, Jesse Dukeminier & James E. Krier, Property 514 (3d ed. 1993)
(‘‘sweeping reform’’); Joseph William Singer, Property Law 841 (2d ed. 1997) (‘‘virtual rev-
olution’’); see also Edward H. Rabin, The Revolution in Residential Landlord-Tenant Law,
69 Cornell L. Rev. 517 (1984).

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544 THE JOURNAL OF LEGAL STUDIES

An observer who appreciates social norms should be skeptical of the sup-

position that this legal change had revolutionary effects. Landlord-tenant
disputes involve small stakes and, in midlease, parties in a continuing rela-
tionship. In this sort of context, disputants tend to rely on informal social
controls, not the legal system.26 Caveat lessee is an inefficient rule in most
instances because (1) a landlord is apt to know more than a tenant about
how to cure a defect, (2) a short-term tenant has inadequate incentives to
make long-lasting repairs, and (3) when a defect affects several tenants,
they would have to coordinate their efforts to deal with it, while a landlord
could act single-handedly. If norms tend to be welfare enhancing for the
parties involved,27 during midlease the informal norm ordinarily prevailing
between a landlord and residential tenant would be something like ‘‘the ten-
ant is entitled to receive housing services whose value equals the rent the
tenant is paying.’’ In the usual case, this norm would require a landlord to
repair a ceiling that had begun to leak during midlease.
If so, the legal centralists’ vision of landlord-tenant relations would be
flawed for the periods both before and after the 1965–75 ‘‘revolution.’’
First, the informal norm just articulated would have significantly protected
tenants when caveat lessee was the nominal rule. Second, after the revolu-
tion, the same norm would deter most tenants from fully exploiting the
overly draconian protenant remedies available in many states under the
warranty-of-habitability doctrine.28
Out-of-Wedlock Births to Teenagers. Of the nonwhite women ages 15–
19 who gave birth in 1960, 42 percent were unmarried. By 1980, the pro-
portion had risen to 82 percent.29 Why this sharp increase in the proportion
of births out of wedlock?
One possibility is that the material incentives of young women changed.
Observers who believe that poor women are highly responsive to levels of
welfare benefits might stress the significant expansion during the 1960–80
period of the federal benefits available to unmarried mothers.30 A related

26
This is not to say that implied warranty of habitability law is never important. Landlord-
tenant law becomes more relevant as a lease nears its end and prospects of continuing rela-
tions wane. In addition, a tenant receiving free legal services is likely to be relatively legalis-
tic. For fuller discussion of the dynamics of landlord-tenant relations, see Ellickson, supra
note 12, at 275–79.
27
As hypothesized in id. at 167–83.
28
See, for example, Hilder v. St. Peter, 144 Vt. 150, 161, 478 A.2d 202, 209 (1984) (artic-
ulating an overly protenant measure of damages).
29
Charles Murray, Losing Ground: American Social Policy, 1950–1980, at 262 (1984).
The equivalent figures for young white women were 2 percent and 11 percent. Id.
30
See, for example, id.; Robert Rector, U.S. Welfare System Imposes Penalty on Mar-
riage, Cleveland Plain Dealer, May 24, 1994, at 7B.

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 LAW AND ECONOMICS DISCOVERS SOCIAL NORMS 545

materialist theory posits that many poor women gave up on the marriage
market during this period because the job prospects of poor men were dete-
riorating.31
A norm-focused analyst, by contrast, would stress changes in the status
rewards associated with unwed motherhood. In the 1950s, giving birth out
of wedlock was widely regarded as deeply shameful. A generation later, in
many inner-city neighborhoods by becoming pregnant and giving birth, an
unmarried teenager would attain higher status among her peers.32 In a simi-
lar vein, by the 1980s a teenage male could win peer status by fathering a
child out of wedlock even if he intended to do little or nothing to help sup-
port the mother and baby.33 Because teenagers crave the esteem of other
teenagers, these shifts in norms likely had major behavioral consequences.
A norm-centered policy analyst would seek to understand why poor teen-
agers had changed their norms. George Akerlof, Janet Yellen, and Michael
Katz hypothesize that advances in birth-control technologies (contraception,
cheaper abortion) undermined the traditional norms supporting shotgun
weddings.34 A second possibility is that the women’s movement, which was
ascendant during 1960–80, provided ideological grounding for norms that
would free women from depending on men for economic support. A third
is that the expansion of the welfare state helped induce residents of poor
neighborhoods to develop norms that would reduce the cognitive disso-
nance created by dependence on welfare benefits. These interrelated
hypotheses, whatever their relative merits, all envisage teenagers as primar-
ily responding not to monetary incentives but to the status incentives that
their peers create. In Losing Ground, Charles Murray’s much contested dis-
cussion of financial incentives in his ‘‘Harold and Phyllis’’ vignette exem-
plifies the traditional law-and-economics emphasis on material incentives.35
By the lights of the emerging law-and-norms scholarship, Losing Ground’s

31
See, for example, William Julius Wilson, The Truly Disadvantaged (1987); Greg J.
Duncan & Saul D. Hoffman, Welfare Benefits, Economic Opportunities, and Out-of-Wedlock
Births among Black Teenage Girls, 27 Demography 519 (1990).
32
See, for example, Elijah Anderson, Neighborhood Effects on Teenage Pregnancy, in
The Urban Underclass 375, 388–91 (Christopher Jencks & Paul E. Peterson eds. 1991) (dis-
cussing effects of peer pressure on inner-city teenage childbearing); see also Mary Jo Bane &
David T. Ellwood, Welfare Realities 114–15 (1994) (citing studies showing increased accep-
tance of out-of-wedlock childbearing between 1974 and 1985); Kristin Luker, Dubious Con-
ceptions 95 (1996) (noting that in 1970 only about one in 10 Americans thought that
childbearing outside of marriage should be legal; by 1985, the figure had risen to 40 percent).
33
See Anderson, supra note 32, at 383.
34
George A. Akerlof, Janet L. Yellen, & Michael L. Katz, An Analysis of Out-of-
Wedlock Childbearing in the United States, 111 Q. J. Econ. 277 (1996).
35
Murray, supra note 29, at 156–77.

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546 THE JOURNAL OF LEGAL STUDIES

less noted discussion of the status incentives of the residents of poor neigh-
borhoods has greater policy relevance.36

II. The Ongoing Competition to Enrich

Classical Law and Economics
This section briefly identifies ongoing efforts on the part of eight differ-
ent individuals or scholarly clusters to bring about a better understanding of
how the legal system meshes with more informal systems of social control.
Because none of these contenders to enrich classical law and economics has
yet to command the field, the conclusion will speculate about what might
come next.
Law-and-Society Scholars. Compared with most others in the legal
academy, members of this school have well appreciated the significance of
informal social controls. These scholars are admired, however, more for
grubbing for facts than for building overarching theory.37 Several detached
observers of the American legal academy have asserted that the work of
the law-and-society school has not ‘‘caught on.’’ 38 This may speak to the
limitations of the school or, more ominously, to the inherent difficulty of
developing a covering theory in this context.
Donald Black. Black, a sociologist, stands out for his ambitious and rel-
atively clear-headed efforts to develop a general theory of social control.39
He generally treats law as a dependent variable that fluctuates with other
social conditions. None of the other papers prepared for this conference cite
Black’s work—an indication of how seldom sociologists influence legal
scholars.
Social-Capital Theorists. In the 1990s, Coleman and Putnam inspired
widespread interest in the notion of social capital, that is, networks of civic
engagement and webs of trusting relationships.40 So defined, social capital
is analogous to a set of adaptive norms. Scholars interested in social capital
are aware of the desirability of developing a theory of creation and destruc-
tion of this intangible asset. The academicians mining this vein are potential

36
Id. at 178–91.
37
See, for example, Stewart MacAulay, Non-contractual Relations in Business, 28 Am.
Soc. Rev. 55 (1963); H. Laurence Ross, Settled Out of Court (rev. ed. 1980).
38
This is the conclusion advanced in both John Henry Schlegel, American Legal Realism
and Empirical Social Science 251–52 (1995), and Neil Duxbury, Patterns of American Juris-
prudence 445 (1995). I offer a somewhat more positive assessment in Ellickson, supra note
12, at 6–8, 147–55.
39
See Donald Black, The Behavior of Law (1976); Toward a General Theory of Social
Control (2 vols., Donald Black ed. 1984).
40
See Coleman, Foundations of Social Theory, supra note 18, at 300–321; Putnam, supra
note 22, at 163–85.

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 LAW AND ECONOMICS DISCOVERS SOCIAL NORMS 547

consorts of the legal scholars interested in norms. At present, however,

social-capital theory remains embryonic.
Game Theorists. Game theory provides a rigorous, if inevitably simpli-
fied, framework for examining the dynamics of informal social control.41
Game theorists can readily allow for socialization (for example, by allowing
past outcomes to alter future payoff matrixes), imperfect information, and
limitations in cognitive capacities. The number of talented scholars practic-
ing (and heavily influenced by) the theory is huge and ever growing.42 It is
notable that interest in the approach transcends disciplinary boundaries.
This suggests that the tortoise of game theory may win the race to provide
a paradigm that captures the essentials of social life. There is a danger,
however, that game theory will become increasingly inaccessible to those
who have not devoted their lives to it.
Order without Law. In this book, I developed a road map of the overall
system of social control.43 This included taxonomies of norms and also of
various ‘‘controllers’’ that discipline human conduct. While the book’s field
study of Shasta County cattlemen won some attention, the taxonomies have
yet to win many adherents.
Robert Cooter. Among legal academicians interested in norms, Cooter
stands out for his stress on socialization, a process commonly ignored by
scholars who use the rational-choice framework.44 Cooter’s emphasis on
this first-party system of social control (to revert to my taxonomy) may
lead him to neglect self-help (second-party control) and externally en-
forced norms, organizational rules, and law (the various third-party con-
trols).
Rising Independent Stars of the Next Generation. As Kuhn would have
predicted,45 younger scholars are leading the thrust to expose and fill in the
major lacunae in classical law and economics. In her work on merchants’
norms, Lisa Bernstein has demonstrated unusual skill in combining theory
with primary empirical work.46 Richard McAdams has engagingly explored

41
A classic is Axelrod, supra note 22.
42
A significant game theorist within the legal academy is Randal Picker. See Randal C.
Picker, Simple Games in a Complex World: A Generative Approach to the Adoption of
Norms, 64 U. Chi. L. Rev. 1225 (1997) (modeling groups and their choices among competing
norms); Douglas G. Baird, Robert H. Gertner, & Randal C. Picker, Game Theory and the
Law (1994).
43
Ellickson, supra note 12.
44
See Robert D. Cooter, Normative Failure Theory of Law, 82 Cornell L. Rev. 947, 955–
57 (1997); compare Robert Frank, If Homo Erectus Could Choose His Own Utility Function,
Would He Want One with a Conscience? 77 Am. Econ. Rev. 593 (1987).
45
See text around note 6 supra.
46
Lisa Bernstein, Opting Out of the Legal System: Extralegal Contractual Relations in the
Diamond Industry, 21 J. Legal Stud. 115 (1992); Lisa Bernstein, Merchant Law in a Mer-

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548 THE JOURNAL OF LEGAL STUDIES

the implications for law of the human quest for status.47 Eric Posner, the
most wide ranging of the many legal scholars working on norms, is well
on the way to establishing himself as a major theorist.48
The ‘‘New Chicago School.’’ Lawrence Lessig’s symposium article
‘‘playfully’’ introduces this appellation and outlines the essence of the ap-
proach.49 I interpret the school to comprehend some of the recent work of
Dan Kahan,50 Cass Sunstein,51 Lessig himself,52 and perhaps that of a few
others, such as Kenneth Dau-Schmidt53 and Richard Pildes,54 who are not
based at the University of Chicago.55 Members of the school seek to acquire
the positive understandings necessary to carry out their normative program,
which is the intentional manipulation of norms to achieve desired social
goals. While they recognize that an individual ‘‘norm entrepreneur’’ may
be able to achieve change in some contexts, the members of the New Chi-
cago School tend to favor governmental activism in the molding of norms.56

chant Court: Rethinking the Code’s Search for Immanent Business Norms, 144 U. Pa. L.
Rev. 1765 (1996).
47
See, for example, the two articles by McAdams, supra note 15.
48
See, for example, Eric A. Posner, The Regulation of Groups: The Influence of Legal
and Nonlegal Sanctions on Collective Action, 63 U. Chi. L. Rev. 133 (1996); Eric A. Posner,
Law, Economics, and Inefficient Norms, 144 U. Pa. L. Rev. 1697 (1996); Eric A. Posner,
The Regulation of Religious Groups, 2 Legal Theory 33 (1996).
49
Lawrence Lessig, The New Chicago School, in this issue, at 661.
50
See, for example, Dan M. Kahan, Social Meaning and the Economic Analysis of Crime,
in this issue, at 609; Dan M. Kahan, Social Influence, Social Meaning, and Deterrence, 83
Va. L. Rev. 349 (1997).
51
See, for example, Sunstein, supra note 3; Cass R. Sunstein, On the Expressive Function
of Law, 144 U. Pa. L. Rev. 2021 (1996).
52
See, for example, Lessig, supra note 49; Lawrence Lessig, The Regulation of Social
Meaning, 62 U. Chi. L. Rev. 943 (1995).
53
See, for example, Kenneth G. Dau-Schmidt, An Economic Analysis of the Criminal
Law as a Preference Shaping Policy, 1990 Duke L. J. 1; Kenneth G. Dau-Schmidt, Legal
Prohibitions as More than Prices: Analysis of Preference Shaping Policies in the Law, in Law
and Economics: New and Critical Perspectives 153 (Robin P. Malloy & Christopher K.
Braun eds. 1995).
54
See, for example, Richard H. Pildes, Why Rights Are Not Trumps: Social Meanings,
Expressive Harms, and Constitutionalism, in this issue, at 725; Richard H. Pildes, The De-
struction of Social Capital through Law, 144 U. Pa. L. Rev. 2055 (1996).
55
Because of differences in methodology, focus, and normative outlook, some University
of Chicago law professors who are interested in norms—Richard Epstein and Randal Picker,
for example—do not fit comfortably within the school. See, for example, Richard A. Epstein,
The Path to The T. J. Hooper: The Theory and History of Custom in the Law of Torts, 21
J. Legal Stud. 3 (1992); Picker, supra note 42.
56
See, for example, Lessig, supra note 49, at 661; Sunstein, supra note 3, at 907–10.
Anticipating criticism, Sunstein is careful to qualify his position. See id. at 965–67.

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 LAW AND ECONOMICS DISCOVERS SOCIAL NORMS 549

It is already clear, however, that the school’s relative confidence in state

norm-shaping is not universally shared.57

III. Differences among the Approaches

Although these entrepreneurs share a common focus, their approaches di-
verge in a number of respects. Among them are the following.
Terminological Variations. It is worrisome that the new norms scholars
do not agree on basic terms, not to mention analytic frameworks. The wa-
ters are so muddy that many writers on norms feel compelled to start by
proffering their own definition of norm.58 Sociology itself has long suffered
from terminological disagreements, which helped prompt Arthur Leff to
characterize it as a swamp.59 Will an academic norm entrepreneur equiva-
lent to Paul Samuelson appear to tidy up the mess or are the underlying
phenomena simply too intractable?
The notion of ‘‘social meaning,’’ a tool in the kit of the New Chicago
School, illustrates the present terminological wrangling.60 During this con-
ference, a number of commentators stated that they found this term to be
ambiguous because it could denote either (1) an actor’s intended meaning
or (2) the message received by those who sense another’s act. If the latter
concept is the central one, ‘‘social reception’’ would express it more clearly
than ‘‘social meaning’’ does.61

57
See, for example, Roderick M. Hills, You Say You Want a Revolution? The Case
against the Transformation of Culture through Antidiscrimination Laws, 95 Mich. L. Rev.
1588 (1997) (expressing skepticism about government’s comparative advantage in assigning
stigma); Picker, supra note 42, at 62 (noting that groups other than governments can play
the role of seeding new norm clusters); Pildes, Destruction of Social Capital, supra note 54
(detailing ways in which state activism may undermine social capital); Eric A. Posner, Sym-
bols, Signals, and Social Norms in Politics and the Law, in this issue, at 795–96 (predicting
that elected officials will be reluctant to challenge dysfunctional norms that most voters em-
brace).
58
Cooter, for example, adopts the philosophers’ definition that a norm is an obligation.
Cooter, supra note 44, at 954–55. I prefer the positivist definition that a norm is a rule sup-
ported by a pattern of informal sanctions; this denies normative status to, for example, an
aspirational statement that is routinely violated without consequence. See Ellickson, supra
note 12, at 127–30. See also Posner, Law, Economics, and Inefficient Norms, supra note 48,
at 1699 (defining a norm as a rule of behavior enforced by private third parties).
59
See Ellickson, supra note 12, at 147 n.46.
60
A concept developed in Lessig, supra note 52.
61
A legal positivist interprets the ‘‘legality’’ of an action as a prediction of what law en-
forcers would do in response to the action. By the same token, the ‘‘social meaning’’ of an
action could be construed as a prediction of how ordinary onlookers and others would sanc-
tion the actor with informal rewards and penalties.

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550 THE JOURNAL OF LEGAL STUDIES

Divergent Assessments of the Adaptiveness of Norms. A substantive de-

bate is brewing over the central question of to what extent norms enhance
welfare. As noted earlier, I am among the optimists on that issue.62 Even I
worry, however, that the members of a group may generate norms that im-
pose negative externalities and that the norm-making process may go wrong
when the members of a group are not closely knit. In addition, critics far
more skeptical of the efficient-norm hypothesis have been surfacing.63
Varying Accounts of the Evolution of Norms. How norms change is a
central and potentially contentious topic. We optimists tend to suppose that
norms evolve in response to changes in science, technology, scarcity, de-
mography, and other influences on supply and demand.64 Although method-
ological individualism invites a theory of how human actors manage to re-
form norms, many of us have ducked that challenge, in effect relegating
norm change to a black box. A strength of the New Chicago School is its
interest in the ability (or inability) of purposive actors such as norm entre-
preneurs and political leaders to alter existing norms. Randal Picker, who
evokes examples such as the sudden demise of foot binding in China, has
been particularly creative and rigorous in his explorations.65
Differing Conceptions of the Wellsprings of Human Order. As noted,
some observers regard socialization (first-party control) as the key precon-
dition of cooperative behavior.66 Game theorists, by contrast, focus on the
structure of incentives that a social setting creates, thereby emphasizing the
role of self-help (second-party control).67 At the conference, there was some
discussion of the relative future importance of law and norms (two major

62
See note 27 supra and text around note 27 supra. Other optimists include Coleman,
Foundations of Social Theory, supra note 18, at 249–58; and Robert D. Cooter, Decentral-
ized Law for a Complex Economy, 144 U. Pa. L. Rev. 1643 (1996). Compare Picker, supra
note 42 (systematically exploring social conditions that help lead members of a group to em-
brace a more efficient norm).
63
See, for example, Lewis A. Kornhauser, Are There Cracks in the Foundations of Spon-
taneous Order? 67 N.Y.U. L. Rev. 647 (1992); Jody S. Kraus, Legal Design and the Evolu-
tion of Commercial Norms, 26 J. Legal Stud. 377 (1997); Posner, Law, Economics, and Inef-
ficient Norms, supra note 48. For another head count of both sides of this debate, see
McAdams, supra note 23, at 635 nn.59–63.
64
See, for example, Ellickson, supra note 12, at 187–88 (seeing change in economic con-
ditions as cause of change in cattle-trespass norms); Harold Demsetz, Toward a Theory of
Property Rights, 57 Am. Econ. Rev. 347 (Pap. & Proc. 1967) (asserting that rise in demand
for fur prompted Labradorian Indians to create exclusive hunting territories).
65
See Picker, supra note 42, at 62, citing Gerald Mackie, Ending Footbinding and Infibu-
lation: A Convention Account, 61 Am. Soc. Rev. 999 (1996) (reporting total collapse of foot-
binding in Tinghsien between 1889 and 1919). Also notable is McAdams, The Origin, Devel-
opment, and Regulation of Norms, supra note 15.
66
See text around note 43 supra.
67
See, for example, Bernheim, supra note 21 (developing model in which conformity oc-
curs despite diverse underlying preferences).

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 LAW AND ECONOMICS DISCOVERS SOCIAL NORMS 551

forms of third-party control). What is the extant division of social-control

labor, and how is it likely to change?
During the conference, Richard Posner predicted that law will become
increasingly important and norms less so. I disagree. It is highly plausible
that politicians—cheered on by members of the New Chicago School—will
seek to expand their sphere of influence. I join Cooter, however, in thinking
that the ever increasing intricacy of social life will make it harder for gov-
ernmental agents to constructively manage human affairs.68 The point is
similar to Friedrich Hayek’s insight that central economic planning be-
comes more, not less, difficult as an economy becomes more complex, in
part because planners at the center become increasingly incapable of ob-
taining and processing needed information.69 The fierce and (so far) largely
successful resistance to government regulation of those involved with the
Internet illustrates how members of a significant new social group have
opted to make norms, not law, their social-control instrument of choice. Al-
though I agree with Richard Posner that law has been expanding during the
past century, the current popularity of deregulation suggests that voters in-
creasingly recognize the limits of law. It is possible of course that the inter-
est groups that benefit from inefficient regulation will continue to hold sway
in many contexts. If they do, however, I predict that members of informal
social groups increasingly will punish those who have hijacked the legal
system for selfish ends.

IV. Conclusion
The founders of classical law and economics were oblivious to important
phenomena, especially the centrality of informal systems of social control.
The mounting appreciation of those systems has destabilized the classical
paradigm. Because scholars do not have to throw over the rational-choice
model to deal with these lacunae, however, law and economics is in for a
time of turbulent normal science, not extinction.
Several scenarios of future intellectual developments suggest themselves.
The first is optimistic. An intellectual entrepreneur or school (perhaps one
of the many contenders mentioned in Section II) devises a superior unifying
theory that comes to be widely accepted. The current unruliness diminishes,
and law and economics, newly enriched, proceeds.
The second scenario is a pessimistic vision. Because human life proves
to be too messy to be cabined within a unifying theory, norm theorists con-
tinue to thrash about. No theory comes close to sweeping the field. Socio-

68
See Cooter, supra note 44, at 948; Cooter, supra note 62, at 1644–46.
69
See Friedrich Hayek, The Road to Serfdom 35–37 (1944).

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552 THE JOURNAL OF LEGAL STUDIES

logically enriched law and economics continues to resemble what sociology

is today: a field without a paradigm. This failure of theory leads to a less-
ening of scholarly interest. The burst of interest in norms in the mid-1990s
turns out to have been a temporary spike.
The third, and most probable, scenario is modest and incremental intel-
lectual change. Symposia such as this one generate additional interest in the
role of norms. Although no unifying theory comes to command the field,
numerous legal scholars cull value from the various offerings. A few works
come to comprise a canon on law and norms. The authors of influential
casebooks refer to some of these canonical works. But in the end, this
canon accounts for only a handful of the snapshots in the thick photo album
of the legal cathedral.

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