ICES Seminar in Experimental Economics and Game Theory
When Institutions Fail: Interactions Between Formal and Informal Enforcement
Friday, October 24, 2025 12:00 PM to 1:00 PM EDT
Vernon Smith Hall (formerly Metropolitan Building), 5183
The ICES Seminar in Experimental Economics and Game Theory of the Fall 2025 semester will feature:
Stanford University
When Institutions Fail: Interactions Between Formal and Informal Enforcement
Abstract
The effectiveness of formal institutions depends on a society’s prevailing social norms. This paper develops a theory of how formal and informal enforcement mechanisms interact, showing that their relationship can be either complementary or destructive. In a repeated-game framework with heterogeneous agents, introducing formal punishment can crowd out informal enforcement when individuals rely on retaliation and reputation to deter defection. By reducing an individual's incentive to punish wrongdoers, institutional enforcement can lower cooperation rates at intermediate levels, generating a U-shaped relationship between institutional strength and cooperation. This backlash does not arise in societies that emphasize social ostracism and avoidance rather than personal retaliation. The theory highlights the conditions under which formal and informal mechanisms act as complements or substitutes and provides a behavioral foundation for institutional traps in which greater enforcement capacity fails to produce stronger social order.
For more information about the Seminar Series, please visit the Seminar Schedule homepage.
