One of my favorite lectures that I gave to the ICES high school economics workshops was the final one on Institutions.  Institutions are often thought of as the “rules of the game,” or in more detail:

“Institutions are the humanly devised constraints that structure political economic and social interaction.  They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights).”  (North 1991:97)

We are easily aware of the “obvious” institutions that are consciously designed by an authority and handed down to us like laws and statutes or religious doctrines that guide our actions, but these “formal” institutions are but a small fraction of the set of institutions that constrain our behavior.

A much larger, and arguably more important, set of institutions are the “informal” customs, traditions, and social mores that we implicitly, and often inarticulably, constrain our behavior.  They emerge simply from everyday interactions from people going about their business, mutually adjusting to each other’s actions, such that certain expectations become ingrained as institutions.  They are, to paraphrase Adam Ferguson (1767), the results of human action but not of human design.

These are the little things like walking on the right side of a path, shaking hands upon greeting someone new, or spending three months salary on an engagement ring.  There are no “laws” that dictate these are the way things are or must be, nobody can trace their origin or explain why they are so oddly specific (why not two months salary?), and yet everyone follows them.  Even more importantly, everyone expects everyone else to follow them, and will punish deviations from these norms with enforcement mechanisms like ostracism, gossip, or disassociation.

One of my favorite examples to drive this point home, and the one that always grabbed the attention of the class was imagining yourself as a guy in the following three scenarios:

1. You walk into the Men’s Room, and there are three open urinals.  Which one do you go to?
2. You walk in and there is one person using the furthest away urinal and there are two open next to him.  Which one do you go to?
3. You’re using the furthest away urinal with the remaining two open, and another man walks in and start using the one next to you.  What do you think of him?

“Man law” dictates that no two men stand next to each other if there are other open urinals that create at least one urinal between two men.  There are some derivative differences, and some people are willing to make exceptions in certain situations.  However, one thing that is clear is that no two men are to make eye contact under any circumstances.

The point is that man law is a spontaneous customary law.  Miller Lite had a hilarious series of commercials where major manly figures sat around an elite table and dictated changes to the sacred man law.

This, of course, never happened and is not the source of man law.  There is no source or enforcement save the men (or women?) that choose to abide by it and enforce it.  They do so because every guy expects every other guy to follow it, and doing so lowers social transaction costs.  There is no governmental body enforcing man law, you cannot take another man to court for using the urinal next to you.  But you can think he’s strange, tell your friends, and avoid him.

Individuals can probably propose new “man laws” – such as the commercial’s idea of waiting six months to date your friend’s ex-girlfriend.  There are new rules implicitly proposed every day in ordinary conversation or action by doing something new.  It will only “catch on” and become an institution if other people adopt the new rule (if it better helps them satisfy their own needs) to such a degree that it becomes widely expected that everyone will follow this rule.  Otherwise, it goes down in history as one more stupid idea.

By the way, for those wishing to test their knowledge of man law in the men’s room, apparently there’s an app for that.

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References

Ferguson, Adam.  An Essay on the History of Civil Society (1767): III-I

North, Douglass C. “Institutions.” The Journal of Economic Perspectives 5(1):97-112