Distinguished Speaker Lecture Series
Center of Business and Economic Research Law, Economics and Role of Social Norms:
A New Approach 2nd Lecture

The Second lecture in the series of the Distinguished Speaker Lecture at the CBER in collaboration with the Economics Department was held on 14th October 2020. The academic talk was led by the globally renowned economist Dr. Kaushik Basu who is Indian Economist who has served as the Chief Economist of the World Bank from 2012 to 2016. He is the C. Marks Professor of International Studies and Professor of Economics at Cornell University, and began a three-year term as President of the International Economic Association in June 2017. The title of the lecture was "Law, Economics and Role of Social Norms: A New Approach". The lecture was conducted on zoom and was broadcasted live on IBA Facebook and YouTube.

The discourse focused on a very important question inquired by Dr. Basu that why some laws are often so ineffective and not followed despite being good on paper. To understand this, Dr. Basu took a step back to first understand why some laws are followed in the first place. The question led Dr. Basu to investigate work done by great scholars and philosophers including David Hume, John Nash, Thomas Schelling and many more. Dr. Basu also shared numerous examples from his seven years of policy making as the Chief Economic Adviser for the Indian government and Chief Economist at the World Bank and it was during this period when he gained his insights for economics and law. He particularly talked about the problems in the food distribution in India where rationing of food is common practice to provide to the poor in the country. He mentioned that the leakage in this food rationing did not only cause the fiscal strain on the government but also the food stays from the poor. A basic example of the system multifunctioning. His other example was related to the corruption laws where he identified that how the law for corruption is formulated in a manner to create a comfort zone to protect the crime as both the bribe giver and bribe taker are both equally punishable. He suggested if it was legal to give bribes but illegal to take it, this could greatly reduce the harassment bribe as it would be easier to identify the problem of corruption. The lecture was a guide to how to link the academics with policy making in the real world.

Sharing his conclusions from his book "The Republic of Beliefs" Dr. Basu stated that how laws are merely a convergence of beliefs and he was able to identify the "Focal point approach" which he explained to the audience with his expertise in game theory. Dr. Basu encouraged the participants to engage in a simple game of two individuals where he presented a square game and asked two random audiences to select the same block without sharing information with each other. In order to earn reward, a condition was put on both players to select the same square. It was close to impossible for the individual to select the same outcome without any salient feature and in his next slide he added color to one tile and claimed that due to the ink added to one square, most of the people would select the inked tile. He informed that he had done this experiment with various individuals during his academic tenure and he was able to conclude that creating a clear point triggered the belief systems and that's how he was able to conclude the focal point approach.

Another interesting insight from Dr. Basu's lecture was the discourse on how laws are followed due to human beings' tendency to stay in behavioral traps. Dr. Basu discussed how in a dictatorship there is a wide display for the loyalty to the regime, not because of widespread loyalty of the regime but more out of fear of being pronounced disloyal to the regime. This triggers a behavioral trap and the outspoken fear sets to settle in impacting the decisions of a common person. Similarly, when people from under developing or developing countries visit the developed countries, they are quick to adapt to laws which they seldom follow in their native countries. This could be easily explained by the behavioral trip and the importance of the focal point approach. It also explains why certain laws are followed and certain are not followed all over the world. In case of multiple equilibria or focal points, distortion causes and often results in chaos. He ended his talk with examples of social norms which are similar to how laws work in the sense that they are also triggered by a set of beliefs. Sharing his investigation on punctuality, which differs across societies and groups of people. His investigation concludes that there is a cost to punctuality and in a reveal that in a society in which unpunctuality, punctuality is not worthwhile and in a society where punctuality is common, it is actually worthwhile to be punctual and that gradually develops a social norm in the society.

This thought-provoking and intellectually stimulating session was attended by faculty, MS, PhD scholars and other members from academia from all over the world. The session ended with an interactive Q&A session which provided a chance for the audience to interact with Dr. Basu. The lecture is available on IBA Karachi YouTube page.