1 George Mason School of Law Contracts II Contract Law in the State of Nature F.H. Buckley...

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George Mason School of Law

Contracts II

Contract Law in the State of Nature

F.H. Buckley

[email protected]

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Hobbes on the State of NatureHobbes, Leviathan 14.18 (1651)

If a covenant be made wherein neither of the parties perform presently, but trust one another, in the condition of mere nature (which is a condition of war of every man against every man) upon any reasonable suspicion, it is void…

For he that performeth first hath no assurance the other will perform after, because the bonds of words are too weak to bridle men's ambition, avarice, anger, and other passions, without the fear of some coercive power; which in the condition of mere nature, where all men are equal, and judges of the justness of their own fears, cannot possibly be supposed. And therefore he which performeth first doth but betray himself to his enemy.

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Contract Law as a solution

Suppose that the defector is penalized through legal sanctions so that the incentive to defect disappears.

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But what if we’re in a State of Nature?

International Law Russia Marriage under no-fault Vague promises Social promises Fidelity

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Credible Commitments in a State of Nature: Four Strategies

Self-binding Union Reciprocal Altruism Social and Internalized Norms

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Credible CommitmentsSelf-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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Modern examples of hostages to solve the problem of trust in bargaining

Bankruptcy and secured lending

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Rings

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Rings

Romantic love

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Credible Commitments

Union strategies

Hume : “Tho' this self-interested commerce of man begins to take place, and to predominate in society, it does not entirely abolish the more generous and noble intercourse of friendship and good offices.”

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Union strategies

Hume : “Tho' this self-interested commerce of man begins to take place, and to predominate in society, it does not entirely abolish the more generous and noble intercourse of friendship and good offices.”

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Union strategiesThe Theory of the Farm

Allen and Lueck, The Nature of the Farm

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Union strategiesMarriage amongst princely families

Victoria and Albert, 1840

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Union strategies

Vertical integration Klein, Crawford, Alchian, 21 J.L. & Econ. 297 (1978)

Armen Alchian

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But see R.H. Coase, The Acquisition of Fisher Body by General Motors, 43 J.L.E. 15 (2000)

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Credible CommitmentsReciprocal Altruism

Robert Trivers: Cooperative behavior amongst animals

Axelrod, The Evolution of Cooperation (1984)

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Reciprocal Altruism

Round 1:Cooperateor Defect

Round 2: Cooperateor Defect











Round 13: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 Al-Quaeda. 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 Al-Quaeda 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 Al-Quaeda 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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Example of TFT communities“Americans like to form clubs.” 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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A genetic basis to reciprocal altruism?

Robert Trivers, 46 Quart. Rev. Biol. 35 (1971)

If TFT is individually rational, no “group selection fallacy” problem

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A genetic basis to reciprocal altruism?

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Credible CommitmentsSocial and Internalized Norms

Ruth Benedict on shame cultures The Chrysanthemum and the Sword (1989)

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Credible CommitmentsSocial and Internalized Norms

David, Andromache Mourning Hector

East-enders handing out the white feather

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But just how long did that last?

33Lytton 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

Are Social Norms Always Benign?

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Gericault, Portrait


If so, what’s wrong with blackmail?

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Suppose that they’re always benign Is blackmail still a problem? What costs

does it impose?

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Suppose that they’re always benign Is blackmail still a problem? What are the costs of blackmail?

Embarrassment Blackmailer’s information production costs Victim’s efforts to hide his vice

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Credible CommitmentsWhat happens when shame is internalized?

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Georges de la Tour, Repentant Magdalene

Credible CommitmentsWhat happens when shame is internalized?

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Holman Hunt, The Awakening ConscienceTate Collection

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Internalized Norms

“There is a man inside me who is angry with me”

Robert Frank, Passion within Reason (1988)

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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 Which explains why we have faces…

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Whom would you vote for?

Alexander Todorov et al., Inferences of competence from faces predict

election outcomes. Science (in press)

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Deception detection: Guilt and facial signalsZygomatic smiles

Zygomatic smiles

Paul Ekman, Darwin and Facial Expressions (1973); What the Face Reveals (1997)

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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 equlibria

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Microexpressions

De la Tour,The Fortune Teller

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Microexpressions

Spot the liar

Two mothers. Which one killed her children?

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Kim Philby

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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


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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


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The RCMP passed on the information to MI-5


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Which assigned it to their head of Soviet Counter-Intelligence…Kim Philby

0oops…I forgot a fifth 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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The advantages of contract law

Privatized and decentralized

Democratic and open to outsiders

Sir Henry Maine: “The movement of the progressive societies has hitherto been a movement from Status to Contract.”

1 George Mason School of Law Contracts II Contract Law in the State of Nature F.H. Buckley...

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