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COPYRIGHT 1996 University of Pennsylvania, Law School
INTRODUCTION I. THE EFFECT OF BLACKMAIL ON GROUP NORMS
A. Blackmail Ambiguously Affects the Expected Cost of Norm Violations
B. Blackmail Impedes the Internalization of Norms
C. Blackmail Inhibits the Communication Processes
That Refine and Reform Inefficient Norms
1. Blackmail Inhibits Gossip-Based
Articulation Of Norm Boundaries
2. Blackmail Inhibits Criticism of
Dysfunctional Norms
D. Norms Theory and Blackmail: Using Law to Create Background Conditions Favorable or Unfavorable to Norms II. THE EFFICIENCY OF THE BLACKMAIL BAN WITH
PRIVACY NORMS
A. The Continuing Puzzle of Opportunistic Blackmail
B. Choosing the Second-Best: Unavoidable Inefficiencies
in the Distribution of Information
1. The Love of Gossip: Why a Blackmail Ban
Produces Excessive Disclosure
2. Asymmetric Transaction Costs: Why a
Lawful Blackmail Market Would Produce
Excessive Secrecy
C. Informational Norms: Why Privacy Norms Correct
the Inefficiency of the Blackmail Ban More
Effectively Than Disclosure Norms Would Correct
the Inefficiency of a Lawful Blackmail Market
1. The Existence of Privacy Norms
2. Privacy Norms Reduce the Excessive
Disclosure Caused By a Blackmail Ban
3. Why Disclosure Norms Would Not Equally
Correct the Tendency of a Lawful Blackmail
Market to Produce Excessive Secrecy
D. Speculating on the Overall Informational
Efficiency of the Blackmail Ban CONCLUSION
INTRODUCTION
Rational choice analysis of law and norms has, to date, yielded several important insights.(1) One might be termed the "substitution hypothesis": legal and norm-based rules are alternative means of social control, and game theory reveals the conditions under which one mechanism governs behavior to the exclusion of the other.(2) That law and norms are alternatives is an old point.(3) What rational choice adds to this insight is some detail about the strategic problems social control mechanisms solve, the incentives individuals face for complying with law or norms, and therefore, a basis for comparing the likely influence of law or norms in a given situation. Robert Ellickson's work, for example, demonstrates the analysis in the context of disputes between neighbors: because property norms solve certain collective action problems, legal rules are not necessary to solve the same problems.(4)
Other rational choice/norms scholars assert what might be termed the "norm governance. hypothesis: Legal rules can shape norms, and the state should cautiously use legal rules to facilitate or obstruct specific norms.(5) Thus, Robert Cooter advocates, in certain circumstances, directly incorporating the otherwise underenforced norms of an industry into legal rules governing contractual relations in that industry.(6) Conversely, certain legal rules may efficiently interfere with dysfunctional norms, as one may regard antidiscrimination laws as usefully impeding enforcement of discriminatory norms.(7) But legal rules may also inefficiently interfere with norms, if for example, the law fails to give adequate weight to informal dispute resolution systems.(8)
The broad purpose of this Article is to illustrate more complex connections between law and norms by complicating the norm governance and substitution hypotheses. My focus is the intersection between group norms and the law of informational blackmail.(9) This intersection is important to both hypotheses. First, the prohibition on blackmail illustrates a more universal type of norm governance. Rather than use law to shape a particular norm, as contract doctrine implements industrial norms or Title VII obstructs discrimination norms, the blackmail ban affects norms "across the board." The state's decision to permit or prohibit blackmail turns out to be an important background determinant of the strength and content of the group norms in society. In this sense, some norm governance is inevitable; even if the state chooses not to shape particular norms, its decision concerning certain behavior, such as blackmail, affects norms generally. The blackmail ban also illustrates a more complex substitution hypothesis. Instead of choosing between a legal and a norm-based rule, the blackmail ban is a case where society has chosen between two bundles of legal and norm-based rules. The efficiency of our current regime depends on how the existing bundle--a legal ban on blackmail combined with certain informational norms--compares to the alternative bundle--a legal right to blackmail combined with the different informational norms that would arise in such a setting.
More narrowly, this Article advances two claims, one positive and one normative. Part I advances the positive claim that blackmail affects the enforcement and content of group norms. Blackmail has certain offsetting effects on the expected cost of violating norms, impedes the internalization of norms, and undermines the communication processes that refine and reform norms. Part II offers the normative claim: that consideration of norms reveals a new justification for the prohibition of blackmail. Here, I first assume the validity of an existing economic theory of the blackmail ban, subject to a particular criticism concerning a subset of blackmail that has been termed "opportunistic."' Part II offers an explanation for why the ban on opportunistic blackmail is efficient, thus supplementing existing theory. My claim is that the regulation of nonproprietary information is necessarily "second-best," the choice being between a regime banning blackmail and producing excessive disclosure and a regime permitting blackmail and producing excessive secrecy. I argue that informational norms obligating privacy correct the former problem to a greater degree than informational norms obligating disclosure would correct the latter.
Before beginning, however, I should make clear the sense in which I am using certain key terms. I follow many others in using "group norms" to mean customary patterns of behavior that individuals within a group feel obligated to follow.(11) And by "group," I have in mind Ellickson's "close-knit" group: "a social network whose members have credible and reciprocal prospects for the application of power against one another and a good supply of information on past and present internal events."(12) Many groups in society qualify as close-knit, and the evidence suggests that many social groups use norms to govern their members' behavior. In his study, Ellickson found that ranchers in Shasta County, California controlled the resolution of property disputes concerning cattle trespass and boundary fences not through law but with norms.(13) The ranchers were connected by both occupation and geography, two elements that are common, though not necessary,(14) to norm-enforcing groups. Steven Cheung, for example, reports that orchard owners in rural Washington provide bees for pollination of their own and neighboring orchards according to a norm requiring a contribution proportionate to the size of one's orchard.(15) Elinor Ostrom describes norms regulating the uses of common pool resources, such as irrigation water, all over the world.(16) Considerable study also shows that norms arise in industries and organizations characterized by repeated interaction among parties.(17)
Finally, throughout this Article I employ the following short-hand: "B" is the person who hers acquired the information useful for blackmail, sometimes a blackmailer; "V" is the victim, usually the person to whom the information pertains; "TP" is the third party (or parties) potentially interested in the information who does not have it, often the recipient of the information should B decide to disclose it.
I. THE EFFECT OF BLACKMAIL ON GROUP NORMS
Most of the existing rational-choice/law-and-norms literature focuses on legal rules of contract or property. But the criminal prohibition on blackmail is one of the few legal rules that directly regulates a mechanism of norm enforcement. The exact definition varies, but many state statutes closely follow the Model Penal Code in defining blackmail (a form of extortion or theft) as existing where one "purposely obtains property of another by threatening to . . . expose any secret tending to subject any person to hatred, contempt or ridicule, or to impair his credit or business repute."(18) Hatred, contempt, ridicule, and impaired reputation are all possible sanctions for violating norms.(19) The meaning of blackmail is, of course, not limited to threatening the shame or reputational loss that occurs for the purpose of enforcing norms. But blackmail includes threats to invoke these norm enforcement mechanisms.
This Part discusses the effect on group norms of prohibiting such threats. I begin the analysis with one simple assumption: that people like to "gossip." People enjoy passing information about people they know to other people they know. Thus, like other forms of communication, gossip is a consumption good, a parstime rather than a burden.(20) Whatever the exact boundaries of this preference, I assume that the fact that another member has violated a group norm is exactly the kind of interesting information people within the group will enjoy passing to others.(21) Given this assumption, and if blackmail threats are deterred by criminal sanctions, we can predict what group members will typically do when they discover that another member has violated a norm: They will disclose the violation to others and, in short order, the violation will become known to the group.(22)
Legalizing and enforcing blackmail contracts, however, will reduce the level of gossip about norm violations.(23) Absent criminal sanctions, blackmail will increase.(24) Thus, rather than gossip, group members who discover norm violations will sometimes conceal their information in order to blackmail the norm violator.(25) Restricting information flow in this manner would affect group norms in three ways. First, legalizing blackmail would change the sanction a group member expects to receive for violating a norm. Second, blackmail would impede the internalization of norms because internalization partly depends on the public punishment of norm violators. Third, blackmail would also inhibit the public communication processes that work to refine norms and to reform dysfunctional norms.
A. Blackmail Ambiguously Aspects the Expected Cost of Norm Violations
A rational group member will violate a norm when the expected benefit exceeds the expected cost. The expected cost of violating a norm depends on the probability of detection and the sanction cost the member will bear if detected. Thus, an individual violates a norm only when b is greater than P(sc), where b is the individual's private benefit from violating the norm, sc is the sanction cost the individual will bear if his violation is detected, and P is the probability of detection by at least one person.(26) The effect of legalizing blackmail is ambiguous because it would likely increase P but decrease sc.
First, for obvious reasons permitting blackmail would increase P. The opportunity for blackmail creates a pecuniary return on investments in information about norm violations. In at least some cases, probably most, the pecuniary return will exceed the value an individual places on gossiping about such information. Thus, individuals will invest more heavily in discovering norm violations,(27) and the probability of detecting a violation will rise.
Second, blackmail would effectively decrease sc, by replacing it with a lower blackmail price. Without a blackmail opportunity, when an individual discovers that a fellow group member has violated a norm, he is likely to circulate that discovery through gossip. A blackmail contract suppresses the gossip that would enable the rest of the group to sanction the violator. A blackmail transaction replaces the sanction cost-sc-with a blackmail price-bp. If bp is equal to sc, then the substitution does not change the expected cost of violating the norm. But I argue that, on average, bp is less than sc. Thus, blackmail lowers the severity of the average sanction imposed on those whose norm violations are discovered.(28)
The first reason V will pay B less than sc is that the two parties will negotiate between sc and B's lower reservation price. Ex ante, there is no reason for V to pay more than sc to avoid incurring sc;(29) therefore, bp can be anywhere between V's and B's reservation prices. B's reservation price is likely to be quite low, much lower than V's reservation price.(30) The outcome of bargaining is partly a function of the differing ability of the parties to perceive each other's reservation price and to misrepresent their own. If skills are randomly distributed, the average outcome may be quite a bit below sc.(31)
Wealth constraints provide a second reason that bp is less than sc. Sometimes V will simply lack the wealth to pay a blackmail price equivalent to sc. For many norm violations the sanctions may be modest, and the likelihood that V cannot pay sc is low. But for norms that may be the most important to the group's welfare--the group's core norms--the sanction may include social and economic ostracism. With these sanctions, it is more likely that V cannot pay sc, and consequently that bp is less than sc. Thus, blackmail will lower the cost of violating the group's most important norms. For these two reasons, the blackmail price will, on average, fall below the value of the norm sanction.(32)
Thus, legalizing blackmail appears to increase the likelihood that someone will detect a norm violation, but appears to decrease the costs the violator incurs once his transgression is detected. The net effect on norm enforcement is indeterminate.(33) For some particular groups or particular norms, it might be possible to speculate productively as to which effect dominates.(34) But I have little basis for guessing whether the blackmail ban, on the whole, increases or decreases the expected cost of violating group norms.(35) The remaining effects, however, are more definitive.
B. Blackmail Impedes the Internalization of Norms
Assume that we cannot predict how blackmail changes the expected cost of violating norms. We still know that the cost the norm violator bears is incurred publicly when it takes the form of a reputational loss, but privately when it takes the form of a blackmail payment. Blackmail drives the punishment of norm violators "underground." In this section and the next, I attempt to predict the consequences of this change. My claim here is that blackmail impedes the internalization of norms.
Many theorists note that norms may arise from the "internalization" of external standards of behavior.(36) To say the norm is internalized is to say that the individual has developed a preference for behaving as the norm requires and suffers some psychic cost--"guilt" or "shame"-from behaving otherwise.(37) Robert Cooter uses signaling theory to construct a rational choice model of internalization. According to Cooter, when a group faces a collective action problem, some of its members recognize and signal to others the collective benefits of cooperation.(38) The resulting "endorsement of cooperation" is "unanimous" because no one gains by defending the strategy of defection; even those intending to defect will publicly endorse cooperation. This unanimous "public consensus" causes people to internalize the norm.(39) Whatever the exact psychology, Cooter's theory is supported by a long line of "conformity" experiments in which individuals facing a unanimous group judgment different from their own tend to conform their expressed judgment to that of the entire group.(40) Sometimes these expressed judgments mask continued disagreement, but sometimes the individuals convince themselves that the group is in fact correct.(41) Cooter suggests that individuals who internalize a norm are willing to bear moderate costs to enforce the norm against others.(42)
Cooter's model, however, appears to claim that the norm arises in a single stage--that for any given individual, the unanimous expression of agreement either causes internalization or it does not. But if unanimity itself fails to produce universal internalization (as Cooter seems to think is probable), then perhaps other mechanisms would come into play. Consider a modification to his model: a "second stage" in which additional internalization occurs. In the first stage, some group members internalize the norm and are willing to bear costs to enforce it. In the second stage, their public norm enforcement causes other members to internalize the norm. A signal of public unanimity combined with individuals bearing costs to enforce the consensus is a stronger signal than public unanimity alone. Strengthening the signal could "convert" to the norm some of those who did not internalize it in the first stage. This effect is particularly likely for children. Public punishment of norm violators is a vivid means of signaling to children the group's view as to the wrongfulness of certain conduct. People are particularly subject to internalization as children, and because children lack the interest or ability to commit many norm violations, they learn at this critical stage by observing the punishment of others.(43) Even for adults, public enforcement may be crucial for inculcating new members with group values.(44)
The publicity of norm enforcement is especially important when considering certain obstacles to internalization. The first obstacle is the "hypocrisy" problem. Cooter's model assumes that in the first stage there is unanimous public signaling, but not unanimous behavioral adherence to that signal. In other words, some people say one thing publicly and do another privately. Perceptions of widespread hypocrisy may impede internalization. People rationalize: Why should I feel guilty when most everyone else does it?(45) But public sanctioning of norm violators permits those who have internalized the norm to demonstrate to those who have not that some group members consistently endorse the norm and bear costs to enforce it. Public enforcement may suppress the contrary hypocrisy signal, causing a new round of internalization to take place.
Consider a second obstacle to norm internalization--a "rationalization" barrier. Like legal rules, some norms are vague. For example, suppose some people internalize a meta-norm that commands them to do "their share" in any group endeavor.(46) On the one hand, such a norm seems to solve all collective action problems perfectly (which suggests that it is too good to be true). On the other hand, the norm is extremely vague. Without a more specific norm, individuals are free to interpret what "their share" is. Here is where rationalization can occur (and can explain why the norm could exist despite free-riding). An individual uses his interpretive creativity to convince himself that his share is as small as possible. He invents rationales for why entirely selfish behavior complies with the norm. Public norm enforcement can undermine this process of rationalization. Public shaming disrupts the comfort of these self-indulgent rationalizations. In public confrontation, a violator can attempt to reduce the sanctions others impose on him either by justifying his violation or exhibiting repentance. But norm enforcers tend to expose mercilessly the self-interested nature of these rationalizations. The violator--and all those who observe the shaming ritual--are thus less likely to rely on those rationalizations again.
Even if these complications are only roughly correct, they sufficiently illustrate how blackmail would interfere with norm internalization. In each instance where B blackmails V concerning his norm violation, there is one less case of public norm enforcement.(47) The fewer instances of public enforcement, the less frequently and intensely the group signals its disapproval of violations.(48) Given that norm violations occur, the weaker signal may ensure that the "hypocrisy" effect will prevent any "stage two" internalizations.(49) Children will witness fewer dramatic examples of the dire consequences of norm violations and have fewer occasions to learn by example. Without public enforcement exposing rationalizations, it will be easier to rationalize selfish conduct as complying with vague norms.
Finally, public norm enforcement may also cause those being punished to internalize the norm. John Braithwaite astutely observes that shaming is a very productive punishment for this reason. Shaming by one's social network may produce guilt mechanisms that control future behavior without external monitoring.(50) But according to Braithwaite's thesis, shaming can produce this effect only if it is followed by "reintegration." Shaming works only to the extent that the shamed individual continues to care about the favorable opinion of his fellow group members. Unrelenting shame pushes the individual, at least psychologically, out of the group; over time, he ceases caring about the opinion that those in the group hold of him. Thus, Braithwaite argues that, except in extreme cases, successful shaming is accompanied by reintegration in which a repentant individual is forgiven and prior relations are resumed.(51)
By rendering impossible the public punishment of a norm violator, blackmail also removes the opportunity for shame and reintegration. Of course, without public shaming, there is no need for reintegration; successful blackmail does not threaten to drive the individual out of the group. The important question, however, is which process is more likely to cause a norm violator to internalize the norm: one where a violator is subject to a shaming ritual, exhibits repentance, and enjoys reintegration; or one where a violator pays a blackmail price to keep his violation secret? I think the question almost answers itself. As stated above, the reason is that public enforcement often exposes the frailty of the norm violator's rationalizations, even to the violator.(52) With blackmail, however, only B shares the norm violator's secret. Yet B has no incentive to puncture the norm violator's rationalizations; he may prefer that V continue violating the norm and subjecting himself to further blackmail. Indeed, B may even lack the "moral authority" to shame V. If B were sufficiently group-regarding, he would disclose the violation rather than seeking to benefit privately from it. The self-serving conduct of the blackmailer may only reinforce the violator's underlying tendency to rationalize his norm violations.(53) In sum, blackmail diminishes public sanctioning, which in turn means observers and recipients of the sanctioning are less likely to internalize the norm.
C. Blackmail Inhibits the Communication Processes That Refine and Reform Inefficient Norms
If norm violators are blackmailed, another consequence is that group members will spend less time in self-conscious discussion of the norm. With fewer cases of public norm enforcement, there is less occasion to discuss whether an act violates the norm, what the appropriate punishment is, or whether the norm requires rethinking. In this Section, I argue that intragroup norm discussion facilitates the efficient development of norms by drawing on two other examples of self-conscious discussion: common law rule-making and consumer complaints. Gossip serves to hone norms just as judicial decisionmaking may refine common law rules and just as consumer complaints may discipline declining firms.
Even those who claim that norms are generally efficient point out the ways in which an inefficient norm can arise.(54) A norm might be inefficient when it first arises; or a norm suited to certain conditions may not change as quickly as those conditions change or may change in the wrong direction. In either case, one may wonder how an inefficient norm can be changed. Self-conscious discussion may refine norms to reflect more precisely the group's interests and reform inefficient norms where they arise.
1. Blackmail Inhibits Gossip-Based Articulation of Norm Boundaries
First, gossip serves as a way of adjudicating disputes over norm violations, and this process, in turn, refines the content of norms to resolve specific concerns.(55) As with legal rules, even if one knows the facts of a situation, there remains the question of applying the norm to the facts. For some norms, the existence of a violation may follow uncontroversially from the facts.(56) But some norms are complex; in addition, it is necessary on occasion to resolve a conflict between norms that may command inconsistent behavior in a particular case.(57)
Through gossip, the group constructs and articulates the exact contours of a norm. Like common law courts, gossip applies the general norm to the particular situation, thereby refining the norm itself.(58) Blackmail would replace gossip and therefore impede this process of refinement.(59) One might object that, whatever the value of adjudication, permitting blackmail would merely reduce, not eliminate, adjudication of norms through gossip. In some cases, observers of a norm violation would choose to gossip despite blackmail opportunities; in other cases, so many people directly observe the violation that there is no opportunity for blackmail. So the question is the marginal value of each gossip-based adjudication. The same difficulty arises in trying to determine the "optimal" level of judicial adjudication: Settlement deprives the courts of an opportunity to state or restate how the law applies to a set of facts,(60) but we can obtain most of the benefits of this judicial refinement without having all cases proceed to trial.
The relationship between gossip and norm refinement is similar: After some point, there are sharply diminishing marginal returns to further discussion. The difficulty is determining whether blackmail would suppress gossip below this point. The comparison to litigation, however, should...
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