Thank you, World Cup fans, I now understand institutions for development

Aid Watch: Thank you, World Cup fans, I now understand institutions for development

My original notion was that intentionally breaking the rules to prevent a loss was cheating, and that it was too bad norms prevalent in Football World did not penalize such behavior more fiercely so that it wouldn’t have happened in the first place. (A column in today’s Wall Street Journal agreed with me. Maybe we’re just both fervent Ghana fans.)

But let’s shift now from normative to positive economics. Do the norms in the Football World let you sometimes break the rules intentionally and suffer the official penalty, without any further normsy punishment of everlasting disgrace? …

… Possible cautionary lesson #1: arrogant people (code word for Americans) should not pass judgment on other societies they don’t understand (like Football World).

Other people pointed out the complexities of rule systems that include penalties for breaking the rules. You don’t want excessively draconian penalties (like the death penalty for contract violations or handballs), or nobody would engage in mutually beneficial activities in the first place, like contracts or football matches. And, with that caveat, no penalty system can be perfectly designed so that it never pays to break the rules in any and all situations. Some egregious case where it paid to break the rule could cause an over-reaction towards excessive penalties or dysfunctional rules (possible examples in financial and economic reforms as well as football).

Norms play a useful role in not only strengthening the incentives to keep the formal rules, but also in complementing the formal rule-formal penalty system. Norms can handle the subtleties of when intentionally breaking the rules and accepting the penalty is OK and when it is not. So for example, social norms might forgive a businessman who chooses to break a contract because of something unforeseen like a fire in his factory, but not so much a businessman who lied about whether there was really a factory fire. …

Soccer has a number of norms about fair play. In one of the games, a defender kicked the ball across the end line to stop play for an injured player. By rule, the opponents had a corner kick. Instead, the opponent's teammates avoided the goal as he placed the ball at the corner and tapped it to the opposing goalie.

There are times when the formal rules need not be followed, or it is appropriate to break them and take the consequences. Unfortunately, when this happens in business or with other interactions, some reformers point to them as instances where the system is broken. It can be evidence, but not necessarily. There is no formulation of laws that will perfectly match justice in all situations. It is a tough balancing act.