Social norms and economic welfare

A norm is an established and self-reinforcing pattern of behaviour: everyone wants to play their part given the expectation that everyone else will continue to play theirs. It is, in short, an equilibrium of a game. This paper surveys some of the ways in which norms structure economic life: in the definition (and division) of property, in the terms of contracts, and in the assignment of social roles. We argue that norms can evolve from the cumulative effect of many decentralized interactions by individuals who are trying to solve a coordination problem. The theory suggests circumstances under which evolutionary forces favor norms that are efficient and more or less egalitarian in their distributive implications. (C) 1998 Elsevier Science B.V. All rights reserved.