1 george mason school of law contracts i contract law in the state of nature f.h. buckley...
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George Mason School of Law
Contracts I
Contract Law in the State of Nature
F.H. Buckley
Next Day
Vices of Capacity: A. Rational Choice B. Children
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Contract Law as a solution to bargaining problems
Suppose that the defector is penalized through legal sanctions so that the incentive to defect disappears.
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Contract Law as a solutionLeviathan
But what if we’re in a state of nature
International Law Weak rule of law Unenforceable agreements
Transaction costs of litigation
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But what if we’re in a State of Nature?1. International Law
Signing of NAFTA Treaty 1992
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But what if we’re in a State of Nature?2. Weak Rule of Law
Deputy Mayor of MoscowVladimir Resin sporting a $360,000 wristwatch
2. Weak Rule of LawMeasures of Government Corruption
2. Weak Rule of LawMeasures of Government Corruption
Transparency International
Rank Score
Denmark 1 9.3
Sweden 4 9.2
Canada 6 8.9
Australia 8 8.7
Switzerland 8 8.7
Hong Kong 13 8.4
Germany 15 7.9
Japan 17 7.8
United Kingdom 20 7.6
United States 22 7.1
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But what if we’re in a State of Nature?3. Unenforceability
Examples?
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But what if we’re in a State of Nature?Unenforceability
Marriage under no-fault Illegal Contracts Vague Contracts Social Promises
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Credible Commitments in a State of Nature: Five Strategies
1. Self-binding2. Union3. Reciprocal Altruism4. Social and Internalized Norms5. Self-enforcing agreements
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Credible Commitments1. Self-binding
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Credible Commitments1. Self-binding
I might persuade another party to trust me if I make it painful for me to breach
Doing this without contract law: The use of hostages
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Hostages: The Burghers of Calais
Rodin 1885
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Not hostages: The burgers of Calais McDonald's at Walmart, 8 South St., Calais, ME 04619
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Richard III IV.v
DERBY: Sir Christopher, tell Richmond this from me: That in the sty of this most bloody boar, My son George Stanley is frank'd up in hold: If I revolt, off goes young George's head; The fear of that withholds my present aid.
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Modern examples of hostages to solve the problem of trust in bargaining
Bankruptcy and secured lending
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Modern examples of hostages to solve the problem of trust in bargaining
Bankruptcy and secured lending
Rings
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Modern examples of hostages to solve the problem of trust in bargaining
Bankruptcy and secured lending
Rings
Romantic love
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Modern examples of hostages to solve the problem of trust in bargaining
Bankruptcy and secured lending
Rings
Romantic love
Reputations
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2. Union strategies
Allen and Lueck, The Nature of the Farm
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2. Union strategiesMarriage amongst princely families
Victoria and Albert, 1840
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2. Union strategiesVertical Integration
Armen Alchian
As a response to post-contractual opportunism:Klein, Crawford, Alchian, 21 J.L. & Econ. 297 (1978)
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Post-contractual opportunism
But see R.H. Coase, The Acquisition of Fisher Body by General Motors, 43 J.L.E. 15 (2000)
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Credible Commitments3. Reciprocal Altruism
Robert Trivers, 46 Quart. Rev. Biol. 35 (1971)
A genetic basis to reciprocal altruism?
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A genetic basis to reciprocal altruism?
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Reciprocal Altruism in Game Theory
Axelrod, The Evolution of Cooperation (1984) Tit-for-tat as a dominant strategy for
iterated PD games
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Reciprocal Altruism in Game Theory
Round 1:Cooperateor Defect
Round 2: Cooperateor Defect
Round 3: Cooperateor Defect
Round 4: Cooperateor Defect
Round 5: Cooperateor Defect
Round 6: Cooperateor Defect
Round 7: Cooperateor Defect
Round 8: Cooperateor Defect
Round 9: Cooperateor Defect
Round 10: Cooperateor Defect
Round 11: Cooperateor Defect
Round 12: Cooperateor Defect
Round 13:Cooperateor Defect
Round 14: Cooperateor Defect
Round 15: Cooperateor Defect
Round 16: Cooperateor Defect
Round 17: Cooperateor Defect
Round 18: Cooperateor Defect
Round 19: Cooperateor Defect
Round 20: Cooperateor Defect
Round 21: Cooperateor Defect
Round 22: Cooperateor Defect
Round 23: Cooperateor Defect
Round 24: Cooperateor Defect
Round 25: Cooperateor Defect
Round 26: Cooperateor Defect
Round 27: Cooperateor Defect
Round 28: Cooperateor Defect
Round 29: Cooperateor Defect
Round 30: Cooperateor Defect
Axelrod’s Iterated Prisoners’ Dilemma
The winner and loser…
Anatol Rapoport Gordon Tullock
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TFT in action: The Christmas truce of 1914 You’re a
good sort, Fritzie, for a Hun…
Ver ist der turkey? Und der
Belgians?
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TFT in action:Posner and Goldsmith on Ambassadors in International Law
Carpaccio, The Legend of St. Ursula: The Arrival of the English Ambassadors
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TFT: An Application?
America is at war with France and the Taliban. American POW’s in France are housed in
a five star hotel where they are feted with wonderful meals and fine wines.
American POW’s held by the Taliban are beheaded, every one of them.
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TFT: An Application? The Geneva Convention prescribes that
POW’s shall be provided with exercise facilities. Is America in breach of this if it offers French but
not Taliban POW’s exercise facilities?
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Example of TFT communitiesOld-boy networks
Bullington Club members, 19872. David Cameron8. Boris Johnson
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Examples of TFT communitiesAlexis Tocqueville
“Americans like to form clubs”
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Racial CommunitiesDiamond district, West 47th Street, NYC
L. Bernstein, 21 J. Legal Stud. 115 (1992)
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Credible Commitments4. Social and Internalized Norms
Ruth Benedict on shame cultures The Chrysanthemum and the Sword (1989)
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4. Social Norms
David, Andromache Mourning Hector
4. Social Norms
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Handing out the white feather
Just how long did that last?
41Lytton Strachey
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But still…
Consider the following examples of cooperative behavior: Not littering Gas Guzzlers Helping out in an emergency: the Good
Samaritan
Yet we never lack for social norms
43Lytton Strachey
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What happens when shame is internalized?
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“There is a man inside me who is angry with me”Sir Thomas Browne
Georges de la Tour, Repentant Magdalene
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Why Guilt is Good for You
If Homo Economicus Had a Choice, would he want a conscience? Robert Frank, 77 AER 593 (1987)
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Visible Guilt Solves the Lemons Problem
If Homo Economicus Had a Choice, would he want a conscience? Robert Frank, 77 AER 593 (1987)
“Speech is the gift God gave us to hide our thoughts.” Talleyrand
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Guilt Explains Why We Have Faces
Whom would you vote for?
Alexander Todorov et al., Inferences of competence from faces predict
election outcomes. Science (in press)
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Guilt Explains Why We Have Faces
Whom would you vote for?
Sen Russ Feingold (Dem. WI)
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Guilt Explains Why We Have Faces
And this time?
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Guilt Explains Why We Have Faces
And this time?
Sen. Ron Johnson (Rep. WI)
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Guilt Explains Why We Have FacesDeception detection: Guilt and Facial Signals
Paul Ekman, Darwin and Facial Expressions (1973); What the Face Reveals (1997)
Which smile is genuine?
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Guilt Explains Why We Have FacesDeception detection: Guilt and Facial Signals
Zygomatic smiles
From an evolutionary perspective, an arms race between deceptive expressions and deception detection
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Microexpressions
We are able to detect visual cues that can be seen for only a fraction of a moment
Two stable equilibria: 98 percent of the population Sociopaths who can fool the rest of us
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Microexpressions
De la Tour, The Fortune Teller
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Look at the Hands
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Microexpressions
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Look at the Hands
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Microexpressions
De la Tour, The Fortune Teller
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Microexpressions
De la Tour, The Fortune Teller
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Microexpressions
Make the Mule
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You are a plainclothes detective at LAX, charged with identifying drug smugglers as they exit a plane.
How do you pick them out?
Spot the liar
Two mothers. Which one killed her children? Mother One Mother Two
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Some Cold War History…
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In September 1945 Soviet cipher clerk Igor Gouzenko defected and told the RCMP of an espionage apparatusat the Anglo-Canadian nuclear research center in Montreal
Some Cold War History…
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Gouzenko told the RCMP that Dr. Alan Nunn May, a British scientist in Montreal, had revealed nuclear secrets to the Soviets and provided them with samples of U-233 and U-235—a few days after Hiroshima
Some Cold War History…
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The RCMP passed on the information to MI-5
Some Cold War History…
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Which assigned it to their head of Soviet Counter-Intelligence…Kim Philby
Kim Philby
Philby 1
Philby 2
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5. Self-enforcing agreements
Suppose that the anticipated gains from the relationship in the future exceed the temptation to defect in every single period
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Cooperate Defect
Cooperate 3, 3 -1, 4
Defect 4, -1 0, 0
Player 2
Player 1
Payoffs in a one-period PD Game
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Cooperate Defect
Cooperate 30, 30 -1, 4
Defect 4, -1 0, 0
Player 2
Player 1
Payoffs in an iterated PD Game
5. Self-enforcing agreements
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The Special Relationship (R.I.P)
0oops…I forgot a sixth enforcement strategy in the state of nature
Can you think what it might be?
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Meet Nick the Chin
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I’m tinkin’ youse should pay what youse owe
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But contract law persists (happily)
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The advantages of Contract Law over Self-binding Strategies
Contract Law frees up assets, as opposed to hostages
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The advantages of Contract Law over Social and Internalized Norms
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Everybody lies…
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The advantages of Contract Law over Reciprocal Altruism and Self-enfocement
One-shot deals and end-period misbehavior
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The advantages of Contract Law over Union Strategies
Democratic and open to outsiders
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The advantages of Contract Law over Union Strategies
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The “amoral familism” of Montegrano
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The advantages of contract law
Sir Henry Maine: “The movement of the progressive societies has hitherto been a movement from Status to Contract.”
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Commerce and the New Man
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“Take the view of the Royal Exchange in London, a place more venerable than many courts of justice. There the Jew, the Mahometan, and the Christiantransact together, and the name of infidel is given to none but bankrupts.”
Voltaire, Letters on the English, Letter VI
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Le doux commerce
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“Commerce cures destructive prejudices;And it is almost a general rule that wherever there are gentle morals (mœures douces) there is commerce; and wherever there is commerce there are gentle morals.”
Montesquieu, The Spirit of the Laws II, book XX, Pléiade 585
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Tom Friedman’s Macdonald’s Rule:The Lexis and the Olive Tree
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But if the spirit of commerce unites nations, it does not in the same manner unite individuals. We see that in countries where the people move only by the spirit of commerce, they make a traffic of all the humane, all the moral virtues; the most trifling things, those which humanity would demand, are there done, or there given, only for money.
Is there a trade-off?