Interventions when Social Norms are Endogenous: A Critique
Abstract
Lucas’s critique of adaptive expectations argues that treating expectations as exogenous whenthey are endogenous can lead to important policy mistakes. More broadly the critique is of treating
the endogenous as exogenous. Here we make the same argument with respect to social norms.
Typically social norms are treated as exogenous in the face of substantial evidence that they are
endogenous. We present a simple stylized model of endogenous social norms and show how ignoring
endogeneity can lead to erroneous conclusions. We first examine how misunderstanding of the
optimal nature of social norms may lead to misinterpretation of evidence and misguided policy
prescriptions. This point we illustrate with two examples. In the first we show how populist
working class resentment of the lax supervision of professional classes may be wrongly attributed
to political power. In the second we show how the impact of double-blind laboratory treatments
is properly understood only in the context of optimal social norms. Our second setting is one
of social norms that may change in response to changed circumstances. In our first illustrative
application we show that public good production can decrease when it is subsidized - and that
this is nevertheless evidence of an increase in welfare. In the second we show how changes in the
minimum wage can have different consequences depending on the scope of coverage. Finally, we
turn to the issue of internalization of social norms. This is widely understood to be important - but
like other aspects of social norms internalization is not fixed or magical but endogenous. Here we
show how the naive idea that laboratory results carry over directly to the field can lead to mistaken
conclusions while at the same time showing how appropriate use of laboratory results can serve as
important confirmation for hypotheses about the field.