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Institutions, Norms, and Culture

This post started out as my attempt to understand an argument that John Wallis was making about institutions, but it kept expanding. I’m posting it now because fall semester is approaching and we are supposed to get the galleys for our book in the next couple of days. In other words, I need to stop messing around with this and get to work. Thorstein Veblen (1899) “The institutions are, in substance, prevalent habits of thought with respect to particular relations and to particular functions of the individual and of the community: and the scheme of life, which is made up of the aggregate of institutions in force at a given point in the development of any society, may on the psychological side be broadly characterized as a prevalent spiritual attitude, or theory of life." (Veblen,

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This post started out as my attempt to understand an argument that John Wallis was making about institutions, but it kept expanding. I’m posting it now because fall semester is approaching and we are supposed to get the galleys for our book in the next couple of days. In other words, I need to stop messing around with this and get to work.

Thorstein Veblen (1899)

“The institutions are, in substance, prevalent habits of thought with respect to particular relations and to particular functions of the individual and of the community: and the scheme of life, which is made up of the aggregate of institutions in force at a given point in the development of any society, may on the psychological side be broadly characterized as a prevalent spiritual attitude, or theory of life." (Veblen, 1953, p.131)

John R. Commons (1931) called “collective action in control, liberation and expansion of

individual action.”

Douglass North (2005)

“institutions―formal rules, informal norms, and their enforcement characteristics.” (North 2005, 48)

“The institutional framework consists of the political structure that specifies the way we develop and aggregate political choices, the property rights structure that defines the formal economic incentives, and the social structure―norms and conventions―that defines the informal incentives in the economy. The institutional structure reflects the accumulated beliefs of the society over time, and change in the institutional framework is usually an incremental process reflecting the constraints that the past imposes on the present and the future.” (North 2005, 49).

Elinor Ostrom (2005)

"Broadly defined, institutions are the prescriptions that humans use to organize all forms of repetitive and structured interactions including those within families, neighborhoods, markets, firms, sports leagues, churches, private associations, and governments at all scales." (Ostrom 2005, 3)

Avner Greif and Christopher Kingston (2011)

“Greif (2006, Chaps. 2 and 5) defines an institution as a system of ‘institutional elements,’

particularly beliefs, norms, and expectations that generate a regularity of behavior

in a social situation. These institutional elements are exogenous to each decisionmaker

whose behavior they influence, but endogenous to the system as a whole.”

John Joseph Wallis (2017)

Institutions are the agreed upon rules of human interaction within a group or an

organization and the means and method of their enforcement. An organization can be an

organization of organizations, and rules can apply across organizations as well as within.

Norms of behavior are 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.

Eric Alston, Lee Alston, Bernardo Mueller, and Tomas Nonnenmacher (2018)

“We define an institution as a rule that recognized entities (individuals or organizations) devise and enforce. Norms are longstanding patterns of behavior shared by a subset of people in a society or organization (e.g, governments, firms, universities, churches, and families.) (Alston et al 2018, 13)

Alesina and Giuliani

“we refer to culture as values and beliefs (one could say informal rules) and to institutions as formal institutions. (This approach is also followed in most of the empirical papers trying to disentangle the two concepts.)”

Joel Mokyr (2017)

“Culture is a set of beliefs, values and preferences, capable of affecting behavior, that are socially (not genetically) transmitted and that are shared by some subset of society.” (Mokyr 2017, 8) “Institutions are socially determined conditional incentives and consequences to actions.” (Mokyr 2017, 9)

It is widely, although not universally, accepted among economists that institutions are one of the most important determinants of long-term economic growth (Acemoglu, Johnson and Robinson 2005). But what are institutions? The definitions of institution provided by Veblen, North, Ostrom and Greif are very broad. Institutions are ideas or beliefs that are shared among a group of people. Some economists, however, argue that institutions are distinct from norms and culture. They don’t argue that norms and culture are un-important, only that for purposes of analysis they should be distinguished from institutions. I’m not convinced that the narrower definition of institutions is a good idea.

Are institutions agreed upon rules but not norms?

John Wallis argues that the “logical relationships between the agreements, rules, and enforcement that sustain institutions are not the same as the logical relationships between behavior, rules, and enforcement that sustain norms of behavior. By their very nature, norms and institutions are necessarily different things.” He goes on to explain that “A theory of institutional change cannot be a theory of everything about human behavior. From the beginning of modern institutional social science, the core focus has been deliberate attempts by organizations to formulate agreed upon rules (Wallis 2017, 42).” Finally, he suggests that “If we define institutions as norms, then it becomes too easy for some people to compare norms and outcomes and completely ignore agreed upon rules. If we abandon attempts to understand how changing agreed upon rules actually affect our norms of behavior, then we will never understand how deliberately to reach collective goals for our societies.” (Wallis 2017, 43) Wallis also notes that agreed upon rules are often not enforced, while norms must be followed by a sufficient number of people or they are not norms. Alston et al credit Wallis with persuading them to distinguish between institutions and norms, although the do not adopt exactly the same definitions.

There are common themes in these rationales: a theory of institutions can’t be everything, formal and informal rules are fundamentally different, the use of formal and informal institutions is confusing, and the use of these terms leads people to undervalue the influence of one of them.

Wallis tries to make the case that the essential nature of agreed upon rules and norms are different:

“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. All of this is by way of saying that the essential nature of institutions as agreed upon rules and norms as patterns of behavior are different.”

I think this argument exaggerates the differences between formal (agreed upon) rules and informal rules (norms). Wallis describes default rules like those in contract law, or divorce law that he argues are agreed to but frequently not followed. These are not actually example of people not following the law. Rules of this sort specify what injured parties may do, not what they must do. If someone does not pay their debt to me, the law says that I may try to garnish their wages; it does not say that I must garnish their wages. But this does not mean that garnishment law does not matter. Not using the law has been the rational for enacting a law. Proponents of the 1898 Bankruptcy Act claimed that one of the benefits of the law would be that people could avoid court (Hansen 1998). After the law was enacted the use of Credit Adjustment Bureaus expanded (Hansen and Hansen 2006 and Hansen and Hansen 2020). Choosing not to exercise your right does not in any way undermine the law.

There are agreed upon rule that declare what people must do rather than what they may do (they are prescriptive rules, not default rules) that are neither followed nor enforced. To be clear I am not talking about cases where the third party makes a choice within the bounds of the law not to enforce; I’m talking about situations in which there is a clear rule that is supposed to be enforced but is not (see Basu 2018). In the United States, for instance, many state and local governments did not end official segregation until the late 1960s, long after the Supreme Court had declared it unconstitutional (Rosenberg 2008).

So there are cases in which agreed upon rules are not followed and not enforced, but there are also cases in which norms are not followed or enforced? There is evidence that people frequently follow the norms of their society regarding things such as fairness, trust and cooperation (see Pseudoerasmus on pro-social institutions). But both ethnographic and experimental research find that norms are not always followed. Ellickson famously documented that people in Shasta County tend to follow norms rather than the law in dealing with stray cattle, but he also found that the norms were not always followed.  Wiessner (2005) found numerous cases of punishment for norm violation among the Ju/’hoansi Bushmen, implying that there were numerous cases of norm violation. There is  evidence that people are frequently willing to incur costs to punish people that violate social norms when dealing with them (Henrich et al), that third parties are also willing to incur costs to punish norm violators (Fehr and Fischbacher 2004), and that people also engage in anti-social punishment (Hermann et al 2008). Other studies suggest that enforcement of norms may be influenced by the severity of the violation, the cost of punishment, the circumstances under which the violation takes place (existence of mitigating circumstances), the identity of the norm violator, and the identity of the person injured by the norm violation. In general, people appear to respond to benefits and costs (including retaliation) of norm enforcement (Przepiorka and Berger 2016; Balafoutas and Nikiforakis 2012). The Ju/’hoansi Bushmen appear to have been particularly sensitive to the threat that punishment posed to ongoing relationships. In sum, enforcement of norms is not automatic, and, like agreed upon rules, enforcement can depend on relationships.

Proponents of a more restrictive definition of institutions also tend to argue that norms are stickier, harder to change, and change more slowly than institutions. Again, I don’t think the evidence on this is entirely clear. There is some evidence that norms are not only subject to policy influence but capable of rapid change (Nyborg et al 2016). As mentioned previously, it took more than a decade to end state enforced school segregation. In my own research it took 100 years to obtain a lasting federal bankruptcy law in the United States; the 1898 Bankruptcy Act alone took nearly twenty years of organized lobbying. In contrast, social norms regarding women in the work force, marriage, and sexual preference have changed quite rapidly. Understanding, social norms can potentially increase the ability to promote change in them (Bicchieri 2016)

I am not arguing that we cannot distinguish between agreed upon rules and norms. I’m arguing that we should not exaggerate the differences between them. Nevertheless, it is possible to distinguish between agreed upon rules and norms. It is not clear, however, that this distinction is going to take us far in developing a general theory of institutions. Whatever, you call them there is a lot of variation within each of these two categories.  We can develop theories that explain Congressional activity, the relationship between federal and state legislation, judicial decision making, or the interaction between legislative and judicial activity. We have a variety of theories for these different situations, but is it reasonable to expect a general theory to cover all of them? How much less likely is it that this general theory will also help us to understand changes in agreed upon rules in Canada, Israel, Switzerland, China, Burundi, Venezuela and Saudi Arabia? Can we develop a single theory that goes beyond some basic statement about individuals balancing the costs and benefits of attempting to change institutions given the set of institutions for changing institutions that they face?

Social norms are similarly variable. We tend to emphasize prosocial norms because of their connection to economic development, but there are plenty of norms that negatively affect well-being: female genital mutilation, racism, sexism, etc. People follow norms for a variety of reasons. There are beneficial and harmful formal rules that people follow or don’t follow for a variety of reasons. They follow norms because they are in their self-interest narrowly conceived; they follow them because they have internalized the values associated with them; they follow them because they fear punishment by others, including supernatural beings. But all of these things are true of formal rules as well.

Are institutions formal rules but not culture.

Several of the definitions at the beginning of this post distinguish betwen institutions and culture. Alesina and Giuliano, for example, state that “Semantically speaking, we find it counterproductive and confusing to label culture (meaning values and beliefs) as informal institutions. We find it confusing to label “everything”—from, say, the level of reciprocal trust in a society to constitutional rules about voting systems—as institutions. Clearly—this is the crux of our paper—culture (or informal institutions) and formal institutions are interrelated, but the label “informal institutions” implies that formal institutions determine informal ones and that the latter are of secondary importance. Once we agree that formal and informal institutions interact, and that either one may cause the other, then identifying certain values and beliefs as culture or informal institutions becomes merely a matter of semantics. We prefer the term culture over informal institutions; we find it more appropriate and less confusing. Similarly, for brevity, we sometimes refer to formal institutions simply as institutions.”

Parts of this argument simply do not make sense to me. For instance, Alesina and Giuliano believe that “the label “informal institutions” implies that formal institutions determine informal ones and that the latter are of secondary importance.” How does the label informal imply that it determines formal, thereby rendering of secondary importance? Notice also this appears to be the opposite of Wallis’s suggestion that “If we define institutions as norms, then it becomes too easy for some people to compare norms and outcomes and completely ignore agreed upon rules.” Alesina and Giuliano suggest that political economists will fail to study informal rules, while Wallis suggests they will fail to study formal rules. Neither claim is supported.

What about the bigger issue of distinguishing between institutions and culture? The central problem with these attempts to separate institutions from culture is that it is inconsistent with the definitions of culture and the way the term is used by people working on cultural evolution.

Mokyr, for instance, relies upon Boyd and Richerson, but Boyd and Richerson do not treat institutions as separate from culture. In Boyd and Richerson (2008, 306) they follow Samuel Bowles definition of institutions as: “the laws, informal rules, and conventions that give durable structure to social interactions in a population.” They explicitly describe how the sort of “agreed upon rules” that Wallis emphasizes are a part of an evolving culture:

Cultural evolution can also amortize slow, costly deliberate, conscious decisions

over many individuals. In law, for example, legislators, lawyers, and

judges expend much effort crafting legislation and interpreting it. To the extent

that they are successful, the entire society benefits. Most of us do not need to

participate in the costly process of legal decision making; we merely need to

know something of the laws that apply to us. Indeed, to the extent that everyday

mores and the formal law coevolve, individuals can acquire useful behaviors

economically by quite unconsciously imitating the behavior they see around

them. In this way, culture is analogous to habit formation in individuals. Variants

that were invented by deliberate reasoning and carried to dominance by

formal collective decision making may be acquired by subsequent generations

through unreflective imitation (Boyd and Richerson, 2008, 307).

Indeed, if one considers Boyd and Richerson’s definition of culture as “a set of beliefs, values and preferences, capable of affecting behavior, that are socially (not genetically) transmitted and that are shared by some subset of society” it is hard to see how you could argue that it does not fit formal rules such as laws.

Back to Veblen

Veblen had the broadest definition of institutions. In his first book, The Theory of The Leisure Class (1899), he explained that, "The institutions are, in substance, prevalent habits of thought with respect to particular relations and to particular functions of the individual and of the community: and the scheme of life, which is made up of the aggregate of institutions in force at a given point in the development of any society, may on the psychological side be broadly characterized as a prevalent spiritual attitude, or theory of life." (Veblen 1912, 190) Veblen explicitly defined both as ideas that were shared by a group of people. “The physical properties of the materials accessible to man are constants; it is the human agent that changes-- his insight and appreciation of what these things can be used for is what develops (Veblen 1919, 71).” Consequently, “the evolution of society is substantially a process of mental adaption on the part of individuals under the stress of circumstances which will no longer tolerate habits of thought formed under and conforming to circumstances in the past." (Veblen 1912, 192)

To Veblen this process of mental adaptation should be the central concern of economists: “To any modern scientist interested in economic phenomenon the chain of cause and effect in which any given phase of human culture is involved as well as the cumulative changes wrought in the fabric of  human conduct itself by the habitual activity of mankind, are matters of more engrossing and abiding interest than the method of inference by which an individual is presumed invariably to balance pleasure and pain under given conditions that are presumed to be normal and invariable (Veblen 1919, 240).”

Veblen’s conception of institutions is the most consistent with the definitions of culture developed by people working on cultural evolution, and largely adopted by economists. Individual institutions, shared habits of thought correspond to memes or cultural elements (Mesoudi 2017). His “scheme of life” is essentially synonymous with culture, at least as it is used by some anthropologists. For instance, Richard Dunham suggests that “culture consists of shared ideational phenomena (values, ideas, beliefs, and the like) in the minds of human beings. It refers to a pooled body or “pool” of information that is both public (socially shared) and prescriptive (in the sense of actually or potentially guiding behavior) (Durham 1991, 3).” And “the new consensus in anthropology regards cultures as systems of symbolically encoded conceptual phenomena that are socially and historically transmitted within and between populations.” (Durham 1991, 8) Henrich, defines culture as “the large body of practices, techniques, heuristics, tools, motivations values, and beliefs that we all acquire while growing up, mostly by learning from other people (Henrich 2016, 3).” But this view of culture isn’t isolated to anthropologists who study the coevolution of genes and culture. The cultural anthropologist Eric Gable also describes culture as “ideas and their embodiment in artifacts and activities (Gable 2011, 6).” Like Veblen’s definitions of institutions and scheme of life these definitions of culture are very broad and emphasize the role of shared ideas that are transmitted over time within a society. These definitions of culture include not just norms, but also legal and political institutions and technology. They include the influence of shared ideas on both the objectives that people deem worthy and the means to achieve those objectives.

The definitions provided by North, Ostrom and Grief are like Veblen’s in defining institutions in terms of shared ideas or beliefs. Because of the emphasis on “rules” it is not clear that they are quite as broad as Veblen. Although the rules of games do not just tell people what they can and can’t do; they also tell you what you should want to do. Modern institutional analysis, especially that reflected in the work of North from Structure and Change in 1981 to Understanding the Process of Economic Change in 2005, seemed to be moving toward a Veblen like approach. Institutions are shared ideas that influence human behavior.  

Pulling formal rules out of culture creates two problems. First, to the extent that culture is defined in terms of ideas that are shared by members of a society, both at a point in time and over time, formal (agreed upon rules) fit within this definition. Unlike norms they agreed upon, written down, and not actually known to everyone. But these things are true of religion, science, and technology as well are these not part of our culture? In my reading of Henrich, the fact that because of culture not all of us have to carry all of the knowledge in our heads is the secret of our success.

Second, terms like “scheme of life” and “culture” tend to suggest that, while we can study particular institutions or memes, they add up to something that can also be considered as a whole. “When we use the word “culture,” we are generally referring to a system of meanings, a system of ideas, present in a myriad of human actions, form the most mundane to the most exalted (Gable 2011, 8)”. Pulling institutions out of culture leaves us without a concept for all the socially shared information and assumes away the possibility that the whole is more than the sum of the parts. It is not clear to me that this makes sense. Rosen (2006) makes an interesting case for viewing law as part of a culture. For instance, he notes that what counts as evidence in a court (trial by ordeal or DNA?) is not something that is separate from a society. Were coverture and Jim Crow laws not part of American culture? In my work, we find that bankruptcy laws and their use have evolved in response to interest group activity but also in response to changing beliefs about debt and failure (Hansen 2020).  


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―. “Why Is Economics Not An Evolutionary Science” in The Place of Science in Modern Civilization and Other Essays. B.W. Huebsch, 1919.

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