On the Complementarity between Law and Social Norms

This article aims to clarify the relationship between the law and social norms and examine how they interact – whether the law completely replaces, or coexists with, the pre-existing social norms. We model a close-knit society consisting of injurers and victims, assuming that both the law and social norms maximize social welfare and that the costs of enforcing legal penalties are greater than those of enforcing social norms. We find that social norms completely replace the law, even in a non-cooperative Nash equilibrium; we then develop exceptions to this result. In particular, when community sanctions for violating social norms are calibrated without consideration of its marginal social benefit due to a reduction in law enforcement cost, our model can have multiple equilibria, including cases in which legal sanctions persist even in the long run, in spite of their inefficiently high enforcement costs. However, we also show that this possibility of an inefficient non-cooperative equilibrium can be eliminated if the government behaves as a Stackelberg leader for the formation of social norms.