1. Cf Edward Peter Stringham, Private Governance: Creating Order in Economic and Social Life (Oxford: Oxford University Press, 2015).

2. See Teubner, Gunther, ed, Global Law Without a State (Aldershot: Dartmouth, 1997);Google Scholar Stewart Macaulay, “Relational Contract Theory: Floating on a Sea of Custom? Thoughts About the Ideas of Ian Macneil and Lisa Bernstein” (2000) 94:3 Nw U L Rev 775; Gessner, V, ed, Legal Certainty Beyond the State: Empirical Studies and Theoretical Debates on Institutional Support for Global Economic Exchanges (Oxford and Portland, OR: Onati-Hart, 2007);Google Scholar PT Leeson, “Social Distance and Self-enforcing Exchange” (2007) 37:1 J Legal Studies 161; Gillian K Hadfield, “The Public and the Private in the Provision of Law for Global Transactions,” USC Center for Law and Economics Research Paper C09-15 (2009): 09-28; Lisa Bernstein, “Merchant Law in a Modern Economy” (2013) Coase Sandor Institute for Law and Economics Working Paper No 639 (2d series).

3. I have discussed the theory of law as the spontaneous convergence of individuals’ claims in Daniele Bertolini, “The Theory of Law ‘As Claim’ and the Inquiry into the Sources of Law: Bruno Leoni In Prospect” (2015) 24:3 S Cal Interdisciplinary LJ 56.

4. Andrew Schotter, “Why Take a Game Theoretical Approach to Economics? Institutions, Economics and Game Theory” (1981) No 81-08, Discussion Paper Series, CV Star Center for Applied Economics; Voss, Thomas, “Game Theoretical Perspectives on the Emergence of Social Norms” in Hechter, Michael & Opp, Karl-Dieter, eds, Social Norms (New York: The Russell Sage Foundation, 2001).Google Scholar

5. See the definition of “social dilemma” provided in Voss, “Game Theoretical Perspectives,” supra note 4.

6. This environmental setting corresponds closely to the one described in Anthony T Kronman, “Contract Law and the State of Nature” (1985) 1:1 J L Econ and Org 5 (identifying a scenario characterized by “possessory security” and “transactional insecurity”). See also Ellickson, Robert C, Order Without Law: How Neighbors Settle Disputes, (Cambridge: Harvard University Press, 1991) at 144.Google Scholar

7. Parisi, Francesco & Fon, Vincy, The Economics of Law-Making (Oxford: Oxford University Press, 2009).Google Scholar

8. See Francesco Parisi, “Toward a Theory of Spontaneous Law” (1995) 6:3 Const Political Economy 211 at 231; Robert D Cooter, “Structural Adjudication and the New Law Merchant: A Model of Decentralized Law” (1994) 14:2 Int’l Rev L & Econ 215; Ellickson, Order Without Law, supra note 6 at 171 (discussing problems of “metric appraisal of social welfare”).

9. Cf Bryan Caplan, The Myth of the Rational Voter: Why Democracies Choose Bad Policies (Princeton: Princeton University Press, 2007).

10. On the one hand, game theory elucidates the strategic interaction between individuals, which largely affects the costs associated with SL. On the other hand, transaction cost economics illuminates the structure of the costs associated with the creation and enforcement of standards of behaviour, which affects the strategic interaction between individuals.

11. That is, in a hypothetical scenario with zero costs associated with the process of adopting and enforcing norms.

12. The evolutionary forces generated by the competitive adjustments of individuals to changing situations would lead parties to adopt the norms that they would have chosen if they had been free to enter into binding agreements. Parisi, “Spontaneous Law,” supra note 8.

13. Ibid at 214.

14. Ibid.

15. Ibid. See also Voss, “Game Theoretical Perspectives,” supra note 4.

16. Parisi, “Spontaneous Law,” supra note 8 at 211.

17. James S Coleman, Foundations of Social Theory (Cambridge: Harvard University Press, Belknap Press, 1994) at 247-48.

18. Kronman, “Contract Law,” supra note 6.

19. Ullmann-Margalit, Edna, The Emergence of Norms (Oxford: Clarendon Press, 1977);Google Scholar Eric A Posner, “Law, Economics, and Inefficient Norms” (1996) 144:5 U Pa L Rev 1697 at 1714.

20. David Lewis, Convention: A Philosophical Study (John Wiley and Sons, 2008).

21. Clayton P Gillette, “Lock-In Effects in Law and Norms” 9 (1998) 78:3 BUL Rev 813 at 819.

22. Ibid at 820.

23. Oliver Pamela, “Reward and Punishments as Selective Incentives for Collective Action” (1980) 85:6 Am J Sociol 1356; Douglas D Heckathorn, “Collective Action and the Second-Order Free Rider Problem” (1989) 1:1 Ration and Soc 78.

24. See Taylor, Michael, Anarchy and Cooperation (Chichester: Wiley, 1976);Google ScholarTaylor, Michael, The Possibility of Cooperation (Cambridge: Cambridge University Press, 1987);Google ScholarAxelrod, Robert, The Evolution of Cooperation (New York: Basic Books, 1984).Google Scholar

25. See Ellickson, Order Without Law, supra note 6 at 167 (“members of a close-knit group develop and maintain norms whose content serves to maximize the aggregate welfare that members obtain in their work-day affairs with one another”). See also Ullmann-Margalit, The Emergence of Norms, supra note 19 and Karl-Dieter Opp, “The Emergence and Effects of Social Norms: A Confrontation of Some Hypotheses of Sociology and Economics” (1979) 32:4 Kyklos 775.

26. For a law and economics perspective, cf Lisa Bernstein, “Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry” (1992) 21:1 J Legal Studies 115; Lisa Bernstein, “Merchant Law in a Merchant Court: Rethinking the Code’s Search for Immanent Business Norms” (1996) 144:5 U Pa L Rev 1765 at 1821. For an evolutionary economic approach, cf Jack Hirshleifer, “Evolutionary Models in Economics and the Law: Cooperation Versus Conflict Strategies” (1982) 4 Research in Law & Econ; Robert Sugden, “Spontaneous Order” (1989) 3:4 J Econ Perspectives 85; Jon Elster, “Social Norms and Economic Theory” (1989) 3:4 J Econ Perspectives 99; Werner Gueth & Axel Ockenfels, “Evolutionary Norm Enforcement” (2000) 331 CESifo Working Paper Series (Munich: CESifo Group) Paper No 331. On social norms, cf Richard H McAdams, “The Origin, Development, and Regulation of Norms” (1997) 96:2 Mich L Rev 338; McAdams, Richard, The Expressive Powers of Law: Theories and Limits (Cambridge: Harvard University Press, 2015).CrossRefGoogle Scholar

27. See Tullock, Gordon, The Social Dilemma: The Economics of War and Revolution (Blacksburg: University Publications, 1974).Google Scholar

28. David M Kreps et al, “Rational Cooperation in the Finitely Repeated Prisoner’s Dilemma” (1982) 27:2 J Econ Theory 245; Francesco Parisi, “The Formation of Customary Law”, paper delivered at the 96 Annual Conference of the American Political Science Association, Washington, DC, September 2000.

29. Drew Fudenberg & Eric Maskin, “The Folk Theorem in Repeated Games with Discounting or with Incomplete Information” (1986) 54:3 Econometrica 533.

30. Ellickson, Order Without Law, supra note 6 at 181.

31. Ibid at 182.

32. Ibid. See also Parisi, “Customary Law,” supra note 28 at 10.

33. See Parisi, “Spontaneous Law,” supra note 8 at 217-18.

34. Ibid at 218.

35. Ibid at 218-19.

36. Parisi emphasizes the case of article 21(1)b of the Vienna Convention of 1969, which establishes that the formulation by state A of a reservation against state B automatically generates the effect of producing a reservation of state B against state A.

37. When the inefficient equilibrium is characterized by symmetric individual strategies, the imposition of a reciprocity constraint is incapable of promoting a cooperative efficient equilibrium. For example, in the battle-of-sexes game, parties have an incentive to adopt a coordinated strategy, although they have opposite preferences regarding the best coordinated strategy. Reciprocity is intrinsic to the same payoff schedule generating an inefficient strategic equilibrium (i.e., a coordinated strategy is preferred to a non-coordinated one). In this type of situation a reciprocity-inducing mechanism does not affect the equilibrium of the game.

38. Robert C Ellickson, “The Evolution of Social Norms: A Perspective from the Legal Academy” in Hechter & Opp, Social Norms, supra note 4.

39. Ibid at 41.

40. Ibid at 45.

41. See, for example, Ernest Q Campbell, “The Internalization of Moral Norms” (1964) 27:4 Sociometry 391; John F Scott, Internalization of Norms: A Sociological Theory of Moral Commitment (Englewood Cliffs: Prentice-Hall, 1971); Amitai Etzioni, “Social Norms: Internalization, Persuasion, and History” (2000) 34:1 Law & Soc’y Rev 157; Robert D Cooter, “Do Good Laws Make Good Citizens? An Economic Analysis of Internalized Norms” (2000) 86:8 Va L Rev 1577; Tom R Tyler, Why People Obey the Law (Princeton: Princeton University Press, 2006); Robert Cooter, “The Intrinsic Value of Obeying a Law: Economic Analysis of the Internal Viewpoint” (2006) 75:3 Fordham L Rev 1275; Stephen Shavell & Louis Kaplow, “Why is it Socially Desirable That People Obey the Law?” (2010) 682 Harvard Law, Economics and Business Discussion Paper.

42. Robert Cooter, “Decentralized Law for a Complex Economy: The Structural Approach to Adjudicating the New Law Merchant” (1996) 144:5 U Pa L Rev 1643 at 1662.

43. Ibid at 1663. See also Michael E Price, Leda Cosmides & John Tooby, “Punitive Sentiment as an Anti-Free Rider Psychological Device” (2002) 23:3 Evolution and Human Behavior 203 (explaining that one function of punitive sentiments could be to recruit labour for collective actions).

44. Cooter, “Structural Adjudication,” supra note 8 at 1667.

45. Gillian K Hadfield & Barry R Weingast, “What is Law? A Coordination Model of the Characteristics of Legal Order” (2012) 4:2 J Legal Analysis 471.

46. Ibid at 476 (“An important implication of our model is that it provides a link between the attributes of legal order that many intuitively associate with law and the resolution of the coordination and incentive problems that underpin effective collective punishment”).

47. I draw from Bicchieri, Cristina, The Grammar of Society: The Nature and Dynamics of Social Norms (Cambridge: Cambridge University Press, 2006) at 8–28.Google Scholar

48. Here, I use a simplified version of the more elaborated terminology introduced by Bicchieri in The Grammar of Society, ibid.

49. See Hadfield & Weingast, “What is Law?,” supra note 45 at 473 (“[A] normative classification scheme that designates some actions as ‘wrongful’ [punishable, undesirable]”).

50. Ibid at 479. (“A logic is an institution, not a disembodied classification scheme.”)

51. Parisi, “Customary Law,” supra note 28 at 22-23.

52. Posner, “Inefficient Norms,” supra note 19 at 1711-19.

53. Jon Elster discusses some examples of inefficient norms in The Cement of Society: A Study of Social Order (Cambridge: Cambridge University Press, 1989) at 138-51 and in Elster, “Social Norms,” supra note 26.

54. Ellickson, Order Without Law, supra note 6 at 169; Ellickson, “Evolution of Social Norms,” supra note 38 at 55; Posner, “Inefficient Norms,” supra note 19 at 1722-23; Cooter, “Decentralized Law,” supra note 42 at 1684-85.

55. I implicitly assume that the marginal costs of participating in decentralized enforcement do not exceed the marginal costs of participating in other types of collective lawmaking processes.

56. Cooter, “Decentralized Law,” supra note 42 at 1670.

57. This is consistent with the fact that people’s preference for cooperation is conditional on other people’s cooperative behaviour. The same assumption is made in Cooter, “Decentralized Law,” supra note 42 at 1669-75. A more complex account of the reality would consider that the individual decision to participate in the enforcement process depends upon the belief that (1) a sufficient number of other individuals enforce the norm and (2) a sufficient number of other individuals expect him or her to enforce the norm.

58. If the number of enforcement actors increases, the marginal enforcement cost decreases; the lower the marginal enforcement costs, the higher the number of enforcement actors, which facilitates norm emergence and persistence over time.

59. If the number of enforcement actors decreases, the marginal enforcement cost increases; the higher the marginal enforcement costs, the lower the number of enforcement actors, which impedes the evolution of the norms.

60. Ellickson, “Evolution of Social Norms,” supra note 38 at 56.

61. Cooter, “Decentralized Law,” supra note 42 at 1687-88; McAdams, “The Origin,” supra note 26 at 411; Posner, “Inefficient Norms,” supra note 19 at 1711-13; Parisi, “Spontaneous Law,” supra note 8 at 215.

62. On this point, see Jozef Niznik, ed, The Normative Environment of European Integration Social, Political and Cultural Obstacles to Compliance with European Norms (Warsaw: Ifis Publishers, 2008).

63. Stan J Liebowitz & Stephen E Margolis, “Network Externality: An Uncommon Tragedy” (1994) 8:2 J Econ Perspectives 133; Michael Klausner, “Corporations, Corporate Law, and Networks of Contracts” (1995) 81:3 Va L Rev 757; Mark A Lemley & David McGowan, “Legal Implications of Network Economic Effects” (1998) 86:3 Cal L Rev 479.

64. Gillette, “Lock-In,” supra note 21 at 818.

65. Compliance with the law increases as the individual’s expected benefit from compliance increases; in turn, the expected benefit might increase as a result of other people following the rule although the content of the rule does not maximize economic efficiency.

66. Gillette, “Lock-In,” supra note 21 at 824 (“Legal rules […] are promulgated by a central authority [a court or legislature, for current purposes], and are thereafter binding on all within the authority’s jurisdiction. The presence of the central authority reduces uncertainty, typically present with technological lock-in, about the willingness of others in the network to adopt the superior standard”).

67. Gillette, “Lock-In,” supra note 21 at 835.

68. Leon E Trakman, The Law Merchant: The Evolution of Commercial Law (Littleton, CO: FB Rothman, 1983); Bruce L Benson, “The Spontaneous Evolution of Commercial Law” (1989) 55:3 Southern Econ J 644; Avner Greif, “Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders’ Coalition” (1993) 83:3 Am Econ Rev 525; Greif, Avner, Institutions and the Path to the Modern Economy: Lessons from Medieval Trade (Cambridge: Cambridge University Press, 2006);CrossRefGoogle Scholar Paul R Milgrom & Douglass C North, “The Role of Institutions in the Revival of Trade: The Law Merchant, Private Judges, and the Champagne Fairs” (1992) 2:1 Economics and Politics 1; Avner Greif, Paul Milgrom & Barry R Weingast, “Coordination, Commitment, and Enforcement: The Case of the Merchant Guild” (1994) 102:4 J Pol Econ 745. More recently some authors have cast doubt on the customary nature of the mediaeval lex mercatoria. See, for example, Celia Wasserstein Fassberg, “Lex Mercatoria: Hoist With Its Own Petard” (2004) 5:1 Chi J Int’l L 67 (arguing that the “idyllic image of an international community of merchants interacting on the basis of shared values,” is not supported by the historical evidence that “the law merchant was not substantive, but rather procedural law, that it was neither transnational nor personal, [and] that it was very probably not customary”).

69. Parisi, “Spontaneous Law,” supra note 8 at 218.

70. Ibid [emphasis is mine].

71. Ibid.

72. Alec Stone Sweet, “The New Lex Mercatoria and Transnational Governance” (2006) 13:5 Journal of European Public Policy 627 at 630.

73. Ibid at 633.

74. Michael W Carroll, “One for All: The Problem of Uniformity Cost in Intellectual Property” (2006) 55:4 AU L Rev 845.

75. Dotan Oliar & Christopher Sprigman, “There’s No Free Laugh (Anymore): The Emergence of Intellectual Property Norms and the Transformation of Stand-Up Comedy” (2008) 94:8 Va L Rev 1787.

76. Ibid at 1836.

77. I examined the implications of the collectivization of the lawmaking process in Bertolini, “Theory of Law,” supra note 3.

78. Robert P Merges, “Contracting into Liability Rules: Intellectual Property Rights and Collective Right Organizations” (1996) 84:5 Cal L Rev 1293 at 1299.

79. The creation of intellectual content to be protected by property rights is highly heterogeneous, and the ex ante centralized structure of political lawmaking is ill suited to efficiently tailor the contents of the compulsory licence.

80. Gordon Tullock, “The Transitional Gains Trap” (1975) 6:2 Bell J Econ 671. Tullock explains that once an inefficient regulation has been enacted as a result of short-term rent-seeking pressures, the future cancellation of the conferred monopolistic rents become increasingly difficult to implement politically, despite the fact that the gains to successors of original beneficiaries have been eroded by market adjustments.

81. Merges, “Contracting,” supra note 78 at 1299.

82. Ibid.

83. Ibid at 1294.

84. Ibid at 1343.

85. Jeanne Clark, Joe Piccolo, Brian Stanton, Karin Tyson, Patent Pools: A Solution to the Problem of Access in Biotechnology Patents? (2000) US Patent and Trademark Office, at 6 http://www.uspto.gov/patents/law/patent_pools.pdf.

86. Steven Shavell, Economic Analysis of Accident Law (Cambridge: Harvard University Press, 1987) at ch 3.

87. Ibid at 51.

88. I have examined the comparative advantages of spontaneous lawmaking with respect to the regulation of product liability in Daniele Bertolini, “Taking the Costs of Consent Seriously: An Alternative Understanding of Legal Efficiency” (2015) 28 J Juris 375.

89. In 1973, the Diet enacted the Consumer Products Safety Act and, through it, established the Product Safety Council. The Act provided for a very limited mandatory regime. The Council was mandated to set safety standards for a few hazardous categories of products and was authorized to ban those products that did not meet the standards.

90. Thomas Gehrig & Peter J Jost, “Quacks, Lemons, and Self-Regulation: A Welfare Analysis” (1995) 7:3 J Regulatory Econ 309; Kathleen Segerson & Thomas J Miceli, “Voluntary Environmental Agreements: Good or Bad News for Environmental Protection?” (1998) 36:2 J Env’l Econ and Management 109; Stefanadis Christodoulos, “Self-Regulation, Innovation, and the Financial Industry” (2003) 23:1 J Regulatory Econ 5.

91. Peter Grajzl & Peter Murrell, “Allocating Law-Making Powers: Self-Regulation vs. Government Regulation” (2007) 35:3 J Comp Econ 520 at 522 [emphasis mine].

92. Ibid at 522.

93. McChesney, Fred S, Money for Nothing: Politicians, Rent Extraction, and Political Extortion (Cambridge: Harvard University Press, 1997).Google Scholar

94. In particular, self-regulatory entities face the incentive to limit the bias in favour of producers below the level of costs that might trigger a consumer’s reaction.

95. See AO Sykes, Product Standards for Internationally Integrated Goods Markets (Washington, DC: Brookings Institution Press, 1995).

96. Ibid at 87-109.