Contestable Norms

To be sustainable without external enforcement, social norms, contracts, and other agreements must not only deter violations but also withstand proposals to move to other norms, contracts, or agreements. We introduce contestable norms, which achieve both objectives, analyze their efficiency, stability, design, and conceptual foundation, and characterize their payoffs. Contestable norms may be inefficient even when agents have arbitrarily frequent opportunities to interact and challenge the incumbent norm, to an extent that is determined by the amount of conflict inherent in agents’ strategic environment. The analysis sheds new light on the efficient institution hypothesis and the renegotiation paradox.