SOCIETÀ ITALIANA DI DIRITTO ED ECONOMIA
Karol Zdybel (University of Hamburg)
Abstract
This paper compares two stylized mechanisms for establishing social rules: custom and deliberate design. Customary rules emerge based on past experiences in similar social interactions, as seen in customary international law or archaic laws. In contrast, rule design involves a rule-maker, which is typical of modern-day legislation or great historical codifications. Unlike most earlier works on similar topics, we consider an incomplete information scenario: our approach realistically assumes that agents have limited knowledge of each other’s preferences and objectives. This limitation is shown to be consequential for rules developed through both mechanisms. We find that customary rules tend to be less internally differentiated because easily replicable and observable practices are more likely to become normatively expected than more case-specific ones. When efficiency requires high complexity, designed rules may have an advantage. Moreover, the participatory nature of custom formation makes it more responsive to underlying economic forces but unresponsive to innovations that bring about Kaldor-Hicks efficiency improvements. Conversely, Kaldor-Hicks improvements are compatible with deliberate rule design. Because designed rules effectively serve as third-party coordination devices, their specific components cannot be vetoed. However, the indivisibility of the incentives to follow designed rules is double-edged: while potentially enabling higher degrees of efficiency, it simultaneously makes deliberate rule design susceptible to manipulation by vested interests and to errors resulting in adverse unintended consequences.