Machiavelli's Mistake - Santa Fe Institute

Another second best (Lipsey-Lancaster) theorem
• Social preferences are a fragile resource for the policy
maker. Another ‘second best’ result: Where contracts
are incomplete (and hence norms may be important in
attenuating market failures), public policies and legal
practices that more closely approximate idealized
complete contracting may exacerbate the underlying
market failure (by undermining socially valuable norms
such as trust or reciprocity) and may result in a less
efficient equilibrium allocation.