Wednesday, March 31, 2010

Norms as a Substitute for Laws

In a fascinating post on joke-theft in the world of stand-up comedy, Kal Raustiala and Chris Sprigman describe the manner in which social norms backed by informal sanctions can accomplish what copyright laws cannot:
Late one Saturday night in February 2007, a stand-up comic named Joe Rogan decided to take the law into his own hands... For weeks, Rogan had been furious over reports from fellow comedians that an even more famous stand-up, Carlos Mencia, had stolen a joke from one of Rogan’s friends... Rogan spotted Mencia in the audience, and he blew up. Slamming Mencia as “Carlos Menstealia,” Rogan accused his rival of joke thievery. Mencia rushed the stage to defend himself, and there began a long, loud, and profane confrontation...

Rogan’s decision to confront Mencia is an example of what stand-up comedians do all the time. Comedians have rules of their own about joke-stealing. And they impose their own punishments on thieves... Why do comedians do this? In part, because they live in a world where intellectual property law – in particular, copyright – does not help them much when a rival comedian steals a joke... lawsuits are simply too expensive and uncertain to work as an effective response... Today’s comics are intent on enforcing ownership rights. Yet they do so via social norms – informal but nonetheless powerful rules enforced by comedians on their peers... Comedians maintain a small list of commandments that every comic must follow – or risk being ostracized, boycotted, and sometimes worse. These norms track copyright law at times... More often than not, however, the norms deviate from copyright: for example, copyright protects expression but not ideas, but comedians’ norms protect expression as well as ideas...

Importantly, comedians’ norms... include informal but powerful punishments. These start with simple badmouthing and ostracism. If that doesn’t work, punishments may escalate to a refusal to work with the offending comedian – which can keep the accused joke-thief off of comedy club rosters. Occasionally, punishments turn violent. None of these sanctions depend on the law – indeed, when comedians resort to threatening or beating up joke thieves, that’s against the law. That said, although both the rules and the punishments are informal, they are effective. Within the community of comedians, it hurts to be accused of stealing a joke. In some cases, repeat accusations may destroy a showbiz career.
Raustiala and Sprigman recognize that the prevalence of such phenomena undermines one of the standard arguments for copyright protection:
What does this all mean? The story of stand-up tells us that... the law is not always necessary to foster creativity. Using informal group norms and sanctions, comedians are able to control joke-stealing. Without the intervention of copyright law, comedians are able to assert ownership of jokes, regulate their use and transfer, impose sanctions on joke-thieves, and maintain substantial incentives to invest in new material.
This presents a challenge to the conventional economic rationale for intellectual property rights. Absent legal protection, the usual theory goes, there will be too few creative works produced — authors and inventors would be unlikely to recoup their cost of creation, so they won’t bother creating in the first place. As we have described, there is no effective legal protection against joke theft. Yet thousands of stand-ups keep cranking out new material night after night. In the absence of law, we find anti-theft norms providing comedians with a substantial incentive to innovate. Which leads to an important and fascinating question: Where else might creativity norms effectively stand in for legal rules?
In fact, one could ask an even broader question: in which other areas of economic and social life might norms (backed by decentralized sanctions) operate as effective substitutes for legal institutions?
This question lies at the heart of the lifelong work of Elinor Ostrom, co-recipient of the 2009 Nobel Memorial Prize in Economics, whose contributions I discussed in in a couple of earlier posts. Using an eclectic mix of methodological approaches, including case studies, laboratory experiments, and game theoretic models, Ostrom managed to overturn conventional wisdom regarding the "tragedy of the commons." She demonstrated the possibility of self-governance when a well-defined group of users with collective rights to an economically valuable resource were at liberty to develop their own rules, and to ostracize, expel, or otherwise sanction each other for violations. 
While Ostrom's focus was on natural resources such as forests, fisheries, and pastures, her basic insights have more general relevance. For instance, institutions of self-governance are critically important in the case of urban communities that lie largely outside the reach of the formal legal system in the United States. There are parts of the country where residents do not have recourse to the courts to adjudicate contractual and other disputes. Given the very high costs of violence as an enforcement mechanism, norms backed by limited community sanctions can therefore play a crucial role.
Sudhir Venkatesh provides a number of vivid examples of this phenomenon in Off the Books, his first-hand account of a Chicago community that functions with limited direct reliance on the police, courts, banks or government agencies. In order to do so, it must draw upon on its own informal substitutes for formal institutions. There is extensive use of barter and in-kind payments for wages and debt settlement, reciprocal lending agreements for insurance, and informal mechanisms for the resolution of disputes and the assignment of property rights. As in the local commons studied by Ostrom, norms sustained by the threat of sanctions allow a broad range of mutually beneficial transactions to occur without formal contracts backed by the power of the state.
The kinds of norms and enforcement mechanisms identified by Ruastiala and Sprigman (and Ostrom and Venkatesh) are pervasive. Many more examples may be found in an extraordinary volume edited by Daniel Bromley. Included among these is a study of sea tenure in Bahia by Cordell and McKean in which the authors describe a system of ethical codes "far more binding on individual conscience than government regulations could ever be." Such codes also crop up in James Acheson's work on the lobster gangs of Maine, E. Somanathan's account of forest resource management in Central Himalaya, and literally hundreds of other studies, enough to fill a two volume bibliography and more.
Norms not only accomplish the goals of laws, they can often do so more efficiently. The erosion of norms (or the prohibition of the sanctions that stabilize them) can therefore be costly, even if formal laws are enacted to take their place. Since laws can sometimes undermine and sometimes reinforce informal codes of conduct, finding the right balance between norms and laws is not an easy task. I suspect that legal scholars are acutely aware of such tensions, but (to my knowledge) these trade-offs have received limited attention in economics.


Update (4/1). In response to a lively discussion of these issues on Mark Thoma's blog, I have posted a few clarifications. Here's a slightly edited version of my comment:
In hierarchical contexts there can be oppressive norms that serve to reinforce and entrench status. Axelrod has a 1986 paper in the APSR with some examples from the Jim Crow period, and many vivid cases can be found in rural parts of South Asia even today, related both to gender and caste. The fact that oppressive norms can be more effective than oppressive laws makes them less rather than more desirable. I should have been more careful on this point.

For norms backed by sanctions to work, group boundaries have to be well-defined, although communities need not be close knit... For example, norms against plagiarism are pretty effective deterrence mechanisms in academic circles.
This is why the distinction between common property and open access is so critical in resource economics. Open access resources would be depleted in no time without laws backed by state power. But a huge number of people living in rural areas of developing countries own little more than the rights to use common pool resources. Privatization or nationalization of these can have massive welfare consequences. So it's important to know whether or not these resources can be managed sustainably by the populations whose livelihood depends on them.
To me, this is the main message emerging from Ostrom's work.


  1. "Manners are of more importance than laws. The law can touch us here and there, now and then. Manners are what vex or soothe, corrupt or purify, exalt or debase, barbarize or refine us, by a constant, steady, uniform, insensible operation like that of the air we breathe in.

    * No. 1, p. 172 in The Works of the Right Honourable Edmund Burke: A New Edition, v. VIII. London: F. C. and J. Rivington, 1815."

    Don the libertarian Democrat

  2. It is very common in business, to try to establish a norm that employees should signal their cooperativeness, by a willingness to work late, and to forego claims for overtime rates of pay. Employees, who leave on time, are "clock-watchers" and employees, who complain or defend their rights, are likely to be fired.

    Are such norms more "efficient" than the law? For whom?

    Laws regarding overtime pay have been increasingly limited in their scope, in order to align with such "norms". One dodge is assert that an employee is a manager and therefore a "salaried" "professional" and, therefore, overtime laws should not apply.

  3. Don, thanks for the quote. I've been thinking a lot about online manners recently, wondering whether the tone of the comments on a blog reflect an audience effect (some blogs attract well-mannered readers) or whether readers take their cues from posts and other comments.

    Bruce, your point is well taken. In hierarchical contexts there can be oppressive norms that serve to reinforce and entrench status. Axelrod has a 1996 paper with some examples from the Jim Crow period, and many vivid cases can be found in rural parts of South Asia even today, related both to gender and caste. So I should have been more careful with the comment about efficiency, thanks for pointing this out.

  4. I wonder whether the success of such norms is reliant on a lack of mobility between groups. Many of these norms likely developed over generations of people who had to live with the consequences of their actions. In a modern era, how resilient would such norms be if, say, someone cut down large swathes of forest and moved to the city with the proceeds?

    However I agree that norm-based interactions can be much more efficient than relying on legal agreements. Francis Fukuyama wrote a very interesting book called "Trust" which covered this on a macro level. It described how societies which had greater levels of social trust were much more successful. Societies with lower levels of trust had much higher transaction costs, which substantially held back commercial trade.

  5. Few months ago I wrote a post about "Social norms versus market norms: how to screw the economy up".
    In the world of economics, particularly in finance, the problem is when social and market norms collide, thus troubles set in.
    If you want to earn extra profit (excess returns) automatically you have to disregard social norms. The copyright law is something to let the owner earn more money than actually would be the case should only social norms be enforceable. Formal law and market norms are there to justify profits in excess of "socially" acceptable or simply to maximize those.

    At we can read "When social and market norms collide, trouble sets in. Take sex again. A guy takes a girl out for dinner and a movie, and he pays the bills. They go out again, and
    he pays the bills once more. They go out a third time, and he’s still springing for the meal and the entertainment. At this point, he’s hoping for at least a passionate kiss at the front door. His wallet is getting perilously thin, but
    worse is what’s going on in his head: he’s having trouble reconciling the social norm (courtship) with the market norm (money for sex). On the fourth date he casually mentions how much this romance is costing him. Now he’s crossed the line. Violation! She calls him a beast and storms off. He should have known that one can’t mix social and market norms-especially in this case-without implying that the lady is a tramp. He should also have remembered the immortal words of Woody Allen: “The most expensive sex is free sex.”

  6. This was fascinating and I love where you took it.

    However, I feel compelled to add that aside from Rogan, there's very few concrete examples of comedians doing the vigilante social norm routine. In recent years we've seen a LOT of comedians build huge, undeniably successful careers off stolen material (Dane Cook being one outstanding example) despite the bitter venom from a small crowd of purists and talented creators.

    Norms are all too easily subverted or trumped outright by money. The massive network TV paychecks and mid-size arena tour income that Mencina continues to earn speaks volumes about how much impact Rogan's actions really had. Carlos Mencina didn't get kicked out of any clubs that mattered enough for him to change his ways -- so he won't.

  7. BruceT, you're right, norms and sanctions work best in groups with well defined boundaries. This is why the distinction between common property and open-access is so critical in resource economics. Open access forests would be degraded in no time.

    MG, yes, if violating norms is consistently profitable (even taking account of sanctions) then such norms will not survive in the long-run, but I think the same goes for laws.

    Thirtyseven, thanks for the information. I don't know much about the comedy circuit but among some groups the sanctions can be pretty severe: norms against plagiarism in academic research are quite successful deterrence mechanisms for instance.

  8. The discussion of rules/norms reminds me a lot of the original institutionalist and economic anthropology discussions of the role of social beliefs in organizing economic activity (Bohannon, Polanyi, Dalton, etc). I wonder if the new literature has much overlap (familiarity) with the older stuff?

  9. Eric: overlap, yes, but not much familiarity as it should.

  10. Rajiv - great post as always. I also enjoyed reading the paper on the evolution of social norms you wrote with E. Somanathan which you linked to. The conclusion that the erosion of norms can be extremely hard to reverse is especially pertinent.

    Norms tend to change in an abrupt manner. This tends to make us complacent about maintaining the conditions that make the norms effective. Moreover, once we move out of the cooperative equilibrium into the defector equilibrium, merely turning back the clock is not enough to get back to the cooperative equilibrium. This kind of phenomena is pervasive in ecosystems - See for example this paper by Scheffer and especially Figure 2 on page 2.

    One of the things that concerns me about the current crisis is the possibility of a breakdown in the norms of fairness and ethical conduct due to the rightly perceived unfair nature of our crony capitalist system. If strategic default becomes the norm rather than the exception, the costs of such a breakdown in a basic moral norm can be very significant. It may also take us a very long time to reverse such a breakdown.

  11. MR, thanks... the article you linked to is interesting. I share your concerns about major breakdowns in norms of ethical conduct and the ecosystem analogy is apt. In a review of Ostrom's work a few years ago I made a similar point:

    "institutions of self-governance are fragile: large-scale interventions, even when well-intentioned, can disrupt and damage local governance structures, often resulting in unanticipated welfare losses. When a history of successful community resource management is in evidence, significant interventions should be made with caution. Once destroyed, evolved institutions are every bit as difficult to reconstruct as natural ecosystems, and a strong case can be made for conserving those that achieve acceptable levels of efficiency and equity."

    Also, I liked your last post on Modigliani-Miller and agree completely with it. But I disagree with Mankiw's suggestion that under the MM assumptions, maturity transformation has no real effects. MT affects the pattern of investment by affecting the shape of the yield curve, even under the MM assumptions. I hope to put up a post on this at some point.

  12. Rajiv,

    I just recently finished Governing the Commons (i.e. yesterday) so this post is pretty serendipitous!

    I was extremely impressed with Ostrom's work, and wish I'd read her book sooner. As someone who primarily works (or, rather, attempts to work) in theory, some of which I try to apply in environmental policy issues, her detailed description of real-world case studies was a revelation --and a huge lesson in humility about the reach of our rigorous game-theoretic models.

    But one set of questions haunted me throughout: Will it be possible to ever develop the mathematical machinery to quantitatively study the complex processes Ostrom so effectively describes in her prose? If not, is the above endeavor even necessary and/or the point? Are Ostrom's qualitative rules and frameworks all that we really need to craft policy in a complex and uncertain world?

    To be sure, I won't be giving up on my research agenda. But I will certainly not be fetishizing elegant math as much as I did before.

    p.s. I will read your earlier posts on Ostrom. Sorry if they already cover this ground.

  13. Stergios, I think there's a lot of interesting theory and empirical work to be done in this area (Jean-Marie Baland and various co-authors have some very good recent papers.) But you're right, the picture is still quite confusing, it's not clear why some communities are able to manage CPRs effectively based on norms and rules while other fall victim to free riders. So a lot of open questions remain.