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

UPDATE July 8, 2010 12:10pm: link to a great new article on the spontaneous evolution of rules in the history of football (see end of post) I learned a lot from the furious debate that followed the post about rules vs. norms, regarding whether Uruguay cheated Ghana.

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? From the numerous comments the post received (assuming they weren’t all concealing Uruguayan ancestry), the answer appears to be yes. (Read the comments on the original post; also read Steve Horwitz's great post on the blog Coordination Problem.)  Many commentators pointed out similar intentional rule violations in American sports, which the norms of American sports fans appear to tolerate. Norms in sports (as in economics) evolve spontaneously to fit the needs of participants (fans, players, or businessmen), and so deserve some respect before a rush to judgment. 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. In football, I assume fan norms would still be pretty tough on a minor football player on one team who intentionally causes a long-lasting and disabling injury to the best football player on the other team. Possible cautionary lesson #2: Norms are complicated. Norms may evolve in a useful way that no single person can fully understand. Norms can be smarter than I am or you are.

Back to normative economics: I can still express my own opinions – I still think Ghana should have won. Now, that that’s over: Go Spain! (Sorry, Dutch and German fans, but none of your banks’ foundations awarded my research institute 400,000 euros.)

UPDATE July 8, 12:10pm:  just found a great new article on the history of football (in its many varieties) as an example of the spontaneous emergence of rules (HT Facebook friend Gonzalo Schwarz).

UPDATE 2: PS if my memory is correct, neither Netherlands nor Spain were beneficiaries of any of the egregious rule violations and blown calls by refs during this World Cup. Maybe playing by the rules is a winning strategy after all.