Welcome to CE Stoicism

"Institutions are the rules of the game of a society or more formally are the humanly devised constraints that structure human interaction. They are composed of formal rules (statue law, common law, regulations), informal constraints (conventions, norms of behavior, and self imposed rules of behavior); and the enforcement characteristics of both" (North 1992, p4). This quote is presented to be disagreed with in the following explanation of norms and institutions.

Norms are patterns of behavior that give rise to "behavioral rules". Behavior rules are the inferences that individuals make about the consequence of the choices in light of how they believe other people will respond. In Lewis example of conventions, people drive on the right side of the road because they believe others will and if they drive on the left side the consequences will be serious. Behavioral rules are internal to individuals. Behavioral equilibria arise when the actions of individuals reinforce the pattern of behavior around them, and so behavioral norms are always patterns of behavior. If people do not individually and internally evaluate and then decide to act in a way that conforms to the pattern, there will be no pattern.

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Institutions are the agreed upon rules of human interaction within a group or an organization and the means and method of their enforcement. ...

Norms of behavior are the repeated patterns of human behavior within a group, no matter its size, that occur regularly enough that individuals form expectations about the behavior of others. The patterns are followed often enough that small or individual deviations do not change expectations. All norms are subject to change if behavior changes. [A behavioral rule]

Social facts are features of the world around us that derive from the actions of the individuals and groups. Institutions and norms are both social facts, but they do not exhaust the social facts in any group or society. In general, social facts are not within the control of individuals, but this feature of social facts varies with scale (e.g., families vs. nations) and the type of social fact (more on this below).

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In any social situation individuals devote considerable attention to figuring out the "rules of the game" that they are embedded in. We observe patterns of behavior around us and make inferences about what rules apply in what situations. In the simpliest terms, a rule is a consequential statement: if X happens then Y will happen. You watch people driving while you drive. If most people drive on the right, you infer that if you drive on the left the liklihood of an accident increases dramatically. The convention of driving on either the right or the left can emerge in a population without any central coordination. Any time we infer a rule from the behavior of people around us we create a "behavioral rule" for ourselves. If a pattern of behavior in a group generates individual responses to the group behavior that reinforce the behavior, then the behavior pattern can become self-enforcing. The idea that social behavior can arise out of the independent beliefs of individuals without explicit external coordination is truly brilliant.

Behavioral rules exist in people's heads, not in the external world. For a norm to emerge only requires that enough people's behavior conform to the norm, not that people's thinking conform to the norm. ...

... Critically, behavioral rules are not agreed upon rules.

In contrast, agreed upon rules [institutions] must by their very nature be external to individuals. They are the result of an agreement between two or more people. Agreements are deliberate, humanly devised, results of collective action. An agreement may result in a pattern of behavior and therefore create a norm. Agreed upon rules exist at every level of human interaction: families, firms, communities, and nations. Institutions exist at every level as a result.

In a very real sense, norms of behavior must always exist as a pattern of actual behavior. If no one behaves in a way that follows the norm, there can be no norm. Norms can exist among people who have no relationship with one another (think about norms of fashion), there is nothing inherent in norms that require agreements. Although, in small groups we often think about norms as stemming from face to face relationships.

Agreed upon rules [(institutions)], in contrast, are always about relationships. Most agreed upon rules are not enforced by actively enforced by policemen. Many rules are only enforced when two parties who are using the rule disagree about their respective behaviors. Businesses write contracts that can be enforced by courts, but what matters to the businesses is the value of the relationship that the contract supports and enables, not whether the agreed upon rules are followed or not. With the exception of some types of criminal activity (defined in a multitude of ways across times and societies), the enforcement of most agreed upon rules depends upon the people and their relationship to which the rule may apply. As a result, observed behavior often does not conform to the agreed upon rule.

Enforcement of norms is probabilistic, but also automatic. If you speak, dress, or act the wrong way, you bear the consequences. Driving on the left in a society where the norm is driving on the right can get you killed. Behavioral norms only matter if there are consequences, if there are not consequences to how we dress, we dress however we want. Enforcement of agreed upon rules is very often optional, it depends on the relationships supported by the rule. You and I write a contract containing a clause that you must deliver goods at a specific time and place or incur a penalty, a clause enforceable by a court. The time passes and you have not delivered the goods, do I take you to court? It depends on the value of our relationship.

Behavioral rules [(norms)] are inferred from external patterns of behavior. While the consequences of violating the norm are external, the enforcement of those norms is internal. Norms emerge only if the choices of individuals lead enough people to exhibit similar behavior.

In contrast, agreed upon rules [(institutions)] are the result of an external agreement between two or more people. The enforcement of an agreed upon rule is both external and optional. The people to whom the rule applies can decide whether to invoke the agreed upon enforcement consequences, or they can agree to continue the relationship even though the prescriptive content of the rule has been violated by one or both of the parties. ...

If institutions are agreed upon rules, then all institutions exist in the context of groups of people. Groups that adopt rules become organizations. They adopt rules [(institutions)] to order their relationships in the hopes of altering the behavior [(norms)] of individuals and of the group. Individuals within an organization very often have to take agreed upon rules as given, beyond their ability to change them. Agreement [(of the institutional rules)] does not require consent or unanimity. Nonetheless some people or group of people within the organization have the ability to alter some rules. There must be an implicit or explicit agreement about how rules can be formed and changed. These rules are what H.L.A. Hart called secondary rules: the agreed upon rules that determine how new rules can be made and existing rules altered. These rules for making rules, or "rules of recognition," enable a group of people to realize that an agreed upon rule has been created. Secondary rules are critical to understanding institutions. ...

Institutional rules require an agreement. It is not what is going on in peple's head that distinguishes a norm from a rule, it is what is going on around them. Families are a common type of organization across all societies. They are structured in very different ways in different societies, but in virtually all families there is some internal division of labor. My family is no different. My wife and I have agreements about how we devide up tasks. One of our agreements is that I take out the garbage, another is that my wife pays the bill and I balance the checkbook (we call it "doing the bank".) These agreements [(institutions)] produce rules that help order our relationship, but they produce different patterns of behavior [(norms)] in relation to the agreement. A half full garbage can bother my wife much more than it bothers me, so my wife often takes out the garbage. If you stood outside our house and counted the times that each of us took out the garbage, you would infer that our rule allocated responsiblity for taking out the garbage to my wife sometimes, me other times, and probably would deduce that we have no rule for taking out the garbage. On the other hand, my wife always pays the bills and I always balance the checkbook.

In either case when my wife asks me to take out the garbage or do the bank I try to do it, quickly if possible. The behavioral norm in our family is that my wife always pays the bills, we share taking out the garbage, and I always balance the checkbook. The behavioral norms do not correspond perfectly to the agreed upon rules. The garbage rule is what we can call a "default" rule. My wife has the option of asking me to take out the garbage, but does not have to. If we cannot agree on who should take out the garbage, I take it out, that is the default. The bank rule is what we can call a "perscriptive" rule. The rule prescribes our behavior in practice. But the fact that the bank rule is a perscriptive rule and the garbage rule is a default rule is not intentional, it is a result of the way the rules work out in practice in our family.

The bank and garbage rule illustrate a subtle point about institutions. Because the bank rule is always followed, it could appear to be a norm of behavior supported by the expectation my wife and I have about each other. The garbage rule could not appear to be a norm because there is no pattern to who takes out the garbage. The reality, however, is the reverse. We need an agreement about the bank rule, because there is no self-enforcing way for us to take care of our finances if each of us writes checks or balances the checkbook only when it appears to be in our individual interests to do so. ... institutions are not just rules, they are agreed upon rules. Insitutions are the rules that frame choice that individuals make.

... The logic of how default rules work is deeply involved in the reasons that equilibria are equilibria. People face choices and the costs and benefits of their choices often depend on the costs and benefits of choices they do not make, and which we do not see. Default rules create options which may often not be chosen, but that does not mean the outside options do not matter to making the choices that are made in equilibrium. Default rules may or may not be intended by the rule makers to be enforced prescriptively, but in practice a default rule works by framing relationships within which the behavior of the individuals to whom the rule applies is shaped. Default rules cannot be norms, because often people's behavor does not conform to the rule. ...

Agreed upon rules, therefore, create incentives that lead to norms of behavior that may conform to the rules or deviate from the rules. ...

Norms come into the picture when we ask why do people follow rules, but not what the rules actually are. ...

Finally, this puts a very different spin on the notion that institutions are the rules of the game and the means of enforcement. In his book Institutions, Intitutional Change, and Economic Performance North describes the process of institutional change using what he called the sports analogy. Teams play a game. The teams for a league to create and enforce rules, and the league pays the referees. Teams have three options: play by the rules, devote resources to changing the rules, or cheat. The dynamic process of institutional change derives from the incentives teams have to attempt to change the rules through collective action, through agreed upon processes, exactly what I have termed institutional rules here. Unfortunately, the exclusive three options give the impression that teams that are not following the rules are cheating. The entire cast of the argument developed here suggests that organizations and individuals often ignore the agreed upon rules, but that does not mean they are cheating. If institutional rules include norms of behavior, which for North they explicitly do, then tams that are doing "not normal" behavior are cheating on the behavioral rules. But many people who are not folloing the rules are not cheating, because many institutional rules are default rules, which do not exist in the sports analogy.

Norms and Institutions