ABSTRACT
CONVENTIONS REGULATE much of economic and social life, yet they have received surprisingly little attention from economists. 1 By a convention, we mean a pattern of behavior that is customary, expected and self-enforcing. Everyone conforms, everyone expects others to conform, and everyone has good reason to conform because conforming is in each person’s best interest when everyone else plans to conform (Lewis, 1969). Familiar examples include following rules of the road, adhering to conventional codes of dress and using words with their conventional meanings. Conventions with direct economic implications include species of money and credit, industrial and technological standards, accounting rules and forms of economic contracts. Indeed, it would scarcely be an exaggeration to say that almost all economic and social institutions are governed to some extent by convention.
