Clash of Classification Institutions

Abstract: Classification institutions - such as social norms, cultural traditions, laws, or regulations - assign a normative label, acceptable or wrongful, to human behavior. Thereby they shape the expectations about other people’s behavior, reduce uncertainty, and create trust in other’s actions. What if two classification institutions do not conform, for instance, because a country with established norms is colonized and new laws are imposed? We construct a dynamic model where social norms clash with legal order. We show when and how norms decay gradually, where more and more players first stop enforcing and then stop complying with the norm as time proceeds. We also show that the existence of legal order can undermine norms, even if legal order cannot enforce its own laws very effectively. In such a case, players may rationally ignore the classification of both norms and laws and engage in novel behavior, implying the breakdown of both governance mechanisms.