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George Mason School of Law
Contracts II
Contract Law in the State of Nature
F.H. Buckley
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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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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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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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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 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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Credible Commitments
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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Credible Commitments
Reciprocal Altruism
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 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
Are Social Norms Always Benign?
If so, what’s wrong with blackmail?
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Are Social Norms Always Benign?
Suppose that they’re always benign Is blackmail still a problem? What costs
does it impose?
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Are Social Norms Always Benign?
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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Credible Commitments
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
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
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
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.”