Document Type

Article

Publication Title

University of Pennsylvania Law Review

Abstract

A fundamental question that emerges from this literature involves the relationship between norms and law. To put this question in its sharpest and most interesting form: Under what circumstances should courts enforce the norms of private parties? In Shasta County, where norms, not laws, apparently govern cattle trespass and fencing disputes among ranchers, should the courts enforce these norms? For Ellickson, the answer seems relatively clear: If one concludes that the norms of close-knit groups are generally efficient, then when a close-knit group acts in contexts in which it is unable to impose losses on members, a utilitarian judge should defer, for example, to the customs of merchants or cattle ranchers engaged in repeat dealings. Llewellyn arrived at a similar conclusion. In numerous provisions, the UCC incorporates commercial practice into the terms of the contract. In this Article, we approach the question from a different perspective, drawing on the theory of incentive-compatible contracting and its application, the theory of internal labor markets (ILM). In examining the relationship between norms and law, we shift from the somewhat marginal case of cattle ranching to the more central and complex case of the employment relationship. The employment relationship is particularly interesting because, unlike Shasta County, it involves numerous interactions among repeat players over a long period of time. In Shasta County, as in Ronald Coase's cases, the parties enter into occasional side-deals to surmount potential harm. In the employment relationship, by contrast, the parties seek an ongoing relationship and generate incentive-compatible contracts that they intend to be self-enforcing.

First Page

1913

DOI

https://doi.org/10.2307/3312643

Volume

144

Publication Date

1996

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