Norms guide human conduct and social interaction as much as formal legal rules. The new institutional economics, premised on institutions as the “rules of the game” that structure social and economic systems, defines institutions to include informal rules, like norms, religious precepts and codes of conduct, and formal rules, like statutes and the common law. In this sense, norms and law work in parallel to influence society.

Norms and law also have an impact on each other. Sometimes the law can be a strong influence on a change in norms, by forcing a change in conduct that gradually becomes accepted throughout society or by inducing a change in the perceptions about the propriety of certain conduct. Changes in social norms regarding the use of seat belts and smoking in public places are examples of this. Of course, the law can rarely change norms, even over decades, without the concomitant influence of education, propaganda, peer pressure, and other similar forms of social persuasion. The influence in the other direction, however, is much stronger because much of the law reflects society's values and norms.

A country's formal law grows out of its culture and society, as emphasized by scholars as different as F. A. Hayek and Lawrence Friedman. The prevailing views of a society act as a constraint on both judge-made and statutory law because social norms influence judges and legislators alike. To the extent that law reflects society, enforcement costs are lower as citizens are more willing to follow the law.