A Theory of Social Custom, of Which Unemployment May be One Consequence

TLDR

The paper examines adherence to social customs. Models show that socially disadvantageous customs can persist due to reputation sanctions, exemplified by fair wages that generate involuntary unemployment.

Abstract

This paper examines adherence to social customs. Models of social customs are found to be inherently multi-equilibrial. It is found that social customs which are disadvantageous to the individual may nevertheless persist without erosion, if individuals are sanctioned by loss of reputation for disobedience of the custom. One example of such a social custom is the persistence of a fair (rather than a market-clearing) wage. In this fashion, involuntary unemployment is explained.