Role-Reversibility, Stochastic Ignorance, and the Formation of Norms
- Author(s): Vincy Fon, Francesco Parisi
- Date Posted: 2003
- Law & Economics #: 03-43
- Availability: Full text (most recent) on SSRN
While much is known about what types of norms are sustainable as rules of behavior, a lot remains to be done to understand the conditions that foster the emergence of efficient norms. This paper provides a contribution to this field, revisiting the conventional wisdom concerning the effect of role reversibility and stochastic ignorance on the emergence of norms. We develop a model of norms formation to study the differences and limits of role reversibility and stochastic ignorance. Role reversibility and stochastic ignorance are environmental conditions that minimize the strategic bias of individual choice. Under role reversibility, individual agents engage in actions knowing that in future time periods there may be a reversal of roles with other players. Each agent maximizes his or her expected payoff, knowing the status quo at the time of the action as well as the ex ante probabilities about his or her future roles. With role reversibility, a party's choice is influenced by the immediate cost of compliance with a norm. In contrast, under stochastic ignorance, players make their choices under a Harsanyi-type veil of uncertainty. Norms that are chosen under conditions of stochastic ignorance can be separated from those chosen under a role-specific context that clouds and biases the formation of norms. Consequently, norms that emerge under stochastic ignorance are more likely to be closer to first-best and to satisfy parties' participation constraints at any given time than are norms chosen under conditions of role reversibility.