Chapter 22. Strategic Interactions Between Modern Law and Custom The question of the role of statutory law in social environments permeated by custom and traditional norms is particularly important when the state law aims to correct social inequalities embedded in the custom. The conventional view is that modern law often fails to take root in custom driven poor societies especially when the formal law conflicts with the custom. Based on a simple static analytical model we argue that from the low activity of modern courts we cannot infer that the statutory law is ineffectual. Indeed there may be an effective indirect impact exerted through a ‘magnet’ effect of the formal law on the informal rulings of customary authorities. We highlight various factors impinging on this effect and illustrate their operation with a number of examples drawn from the existing literature as well as from the authors’ own field experience. Another striking result is that pro poor radicalism may defeat its own purpose: under certain conditions a moderate law better serves the interests of the poor than a radical law. The same conclusion can actually be reached with the help of a more complex model in which the size of the community subject to customary mediation is itself endogenous and the benefits and costs of remaining within the customary jurisdiction relative to those of going to the formal court depend themselves on community size. The purpose of the chapter is therefore to open to the instruments of micro economic analysis a new field: interactions between modern statutory law and custom in the context of developing countries subject to strong and sometimes inegalitarian social norms. It will be argued that the economist’s tools can shed useful light on certain empirical facts and observations of legal anthropologists and other social scientists.