George Mason School of Law

*George Mason School of Law

Contracts I

Contract Law in the State of Nature

F.H. [email protected]

HousekeepingStatutory SupplementDawn Moore had sold copies less authors discount till Aug. 25, but will still sell them if you contact her at 993-8093 or [email protected] (after 500 pm) or Katie Hickey at 993-8271 (before 400 pm)*

HousekeepingFor Next WeekIllegality*

*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.*

*Contract Law as a solution

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

*Contract Law as a solutionLeviathanUpon Earth there is not his like (Job 41:33)

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*But what if were in a State of Nature?

Where there is no legal enforcement of contracts*

*States of Nature

International law

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*States of Nature

International lawWeak rule of law

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*States of Nature

International lawWeak rule of lawLegally unenforceable promises

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*1.International LawSigning of NAFTA Treaty 1992*

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2.Weak Rule of Law

Just what does the rule of law mean?*

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2.Weak Rule of Law: CorruptionDeputy Mayor of MoscowVladimir Resin sporting a $360,000 wristwatch*

2.Weak Rule of Law: Corruption*Fisman and Miguel, Cultures of Corruption: Evidence from Diplomatic Parking Tickets, 115 JPE1020 (2007)

2.Weak Rule of Law: Corruption*

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2.Weak Rule of Law*

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2.Weak Rule of Law: Law vs. Politics

Can we speak of the rule of law where every legal decision is determined by political considerations?*Telephone Justice

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2.Weak Rule of Law: Law vs. Politics: Raison dEtat

*Section Spciale,Costa Garvas 1975

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2.Weak Rule of Law: Law vs. Politics

Are we sure we subscribe to the ideal of neutral legal principles, shorn of politics? *Duncan Kennedy

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2.Weak Rule of LawThick and Thin

Just what does the rule of law mean?Thick RoL: civil rights, democracy, personal libertyThin RoL: enforcement of contracts, property rights*

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2.Weak Rule of LawThick and Thin

Just what does the rule of law mean?Thick RoL: civil rights, democracy, personal libertyThin RoL: enforcement of contracts, property rightsMust they go together?Washington Consensus vs. Beijing Consensus*

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3.Legal Unenforceability

Examples?*

*But what if were in a State of Nature?Unenforceability

Marriage under no-fault*


Bankruptcy*


Illegal Contracts*


Vague Contracts*


Social and Family Promises*


Excessive legal excuses?*Justice Roger Traynor

An Excess of Law?*Magee, The Optimum Number of Lawyers, 17 Law and Social Inquiry 667 (1992)

*Can one make credible commitments in a State of Nature?*

*Credible Commitments in a State of Nature1.Self-binding

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2.Union

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2.Union

3.Reciprocal Altruism

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2.Union


4.Social and Internalized Norms*

*Further readings

Kronman, Contract law in the State of Nature, 1 JLEO 5 (1980).*

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1.Self-binding

I might persuade another party to trust me if I make it painful for me to breach

Can this be done without using contracts?

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1.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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*1.Self-bindingThe Burghers of CalaisRodin 1885*

*1.Self-binding

Not hostages: The burgers of Calais *McDonald's at Walmart, 8 South St., Calais, ME 04619

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1.Self-binding: Hostages

Earl of 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. Richard III, IV.v *

*Richard IIIDerby1.Self-binding: Hostages Before taking hostages: Defection dominates for Derby

CooperateDefectCooperateFights for Richard-10, 3-10, 3DefectFights for Bolingbroke10, -1010, -10

*Richard IIIDerby1.Self-binding: Hostages After taking hostages: Defection no longer dominates for Derby

CooperateDoesnt kill sonDefectKills sonCooperateFights for Richard-10, 3-10, 3DefectFights for Bolingbroke10, -10-1000, -10

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1.Self-binding: HostagesWhat is needed to make the hostage game work

Derby places a greater value on his sons life than he does on fighting for Bolingbroke *

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Derby places a greater value on his sons life than he does on fighting for BolingbrokeBolingbroke cant compensate Derby for the loss of his son

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Derby places a greater value on his sons life than he does on fighting for BolingbrokeBolingbroke cant compensate Derby for the loss of his sonDerby places a higher value on his sons life than Richard III does on the sons life or death

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1.Self-binding: Pawnbrokers

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In a possessory security interest, the borrower values the collateral more than the lender, which makes the promise of repayment credible*

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In a possessory security interest, the borrower values the collateral more than the lender, which makes the promise of repayment credible

Why possessory security interests are replaced by non-possessory security interestsand why theyre not *

*1.Self-binding: Rings

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*1.Self-binding: Romantic Love

*Millais, Ophelia

*1.Self-binding: Reputations

Why are hostages killed if ransoms are not paid?*

*1.Self-binding: Reputations

Why might a retailer refuse to settle slip-and-falls?*

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2.Union strategies

*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.

*2.Union strategiesFamilies

Allen and Lueck, The Nature of the Farm*

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2.Union strategiesMarriage amongst princely families

Victoria and Albert, 1840*

*2.Union strategiesVertical IntegrationArmen AlchianAs 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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Robert Trivers, 46 Quart. Rev. Biol. 35 (1971)*

*A genetic basis to reciprocal altruism?*Fish employing the defect strategy

*A genetic basis to reciprocal altruism?*Fish employing the cooperative strategy

*A genetic basis to reciprocal altruism?*

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Reciprocal Altruism in Game TheoryAxelrod, The Evolution of Cooperation (1984)Tit-for-tat as a dominant strategy for iterated PD games

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Reciprocal Altruism in Game TheoryAxelrods Iterated Prisoners Dilemma*

Round 1:Cooperateor DefectRound 2: Cooperateor DefectRound 3: Cooperateor DefectRound 4: Cooperateor DefectRound 5: Cooperateor DefectRound 6: Cooperateor DefectRound 7: Cooperateor DefectRound 8: Cooperateor DefectRound 9: Cooperateor DefectRound 10: Cooperateor DefectRound 11: Cooperateor DefectRound 12: Cooperateor DefectRound 13:Cooperateor DefectRound 14: Cooperateor DefectRound 15: Cooperateor DefectRound 16: Cooperateor DefectRound 17: Cooperateor DefectRound 18: Cooperateor DefectRound 19: Cooperateor DefectRound 20: Cooperateor DefectRound 21: Cooperateor DefectRound 22: Cooperateor DefectRound 23: Cooperateor DefectRound 24: Cooperateor DefectRound 25: Cooperateor DefectRound 26: Cooperateor DefectRound 27: Cooperateor DefectRound 28: Cooperateor DefectRound 29: Cooperateor DefectRound 30: Cooperateor Defect

The winner and loserAnatol RapoportGordon Tullock*

*TFT in action: The Christmas truce of 1914Youre a good sort, Fritzie, for a Hun

Ver ist der turkey? Und der Belgians?*

*TFT in action:Posner and Goldsmith on Ambassadors in International LawCarpaccio, The Legend of St. Ursula: The Arrival of the English Ambassadors*

*TFT: An Application?America is at war with France and the Taliban. American POWs in France are housed in a five star hotel where they are feted with wonderful meals and fine wines.American POWs held by the Taliban are beheaded, every one of them.

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*TFT: An Application?The Geneva Convention prescribes that POWs shall be provided with exercise facilities. Is America in breach of this if it offers French but not Taliban POWs exercise facilities?*

*Example of TFT communitiesOld-boy networks

Bullington Club members, 19872. David Cameron8. Boris Johnson*

*Examples of TFT communitiesAmericans like to form clubs. Tocqueville

Americans like to form clubs*

*Racial CommunitiesDiamond district, West 47th Street, NYCL. Bernstein, 21 J. Legal Stud. 115 (1992)*

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4.Social and Internalized Norms

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

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*Social Norms: Honor

*Not fight? I would feel terrible shame before the Trojansand their wives of the flowing robes.

Iliad 6:441

*Social Norms: Honor*Yet if I fight and die, "I see you there in Argos, toiling for some other woman at the loom, or carrying water from an alien well ...There goes the wife of Hector they will say when they see your tears. He was the champion of the Trojans, when Ilium was besieged. And every time they say it, you will feel another pang at theloss of the one man who might have kept you free." Hector to Andromache.

Social Norms: Honor**

Social Norms Today?*Lytton Strachey*

Yet we never lack for social norms*Lytton Strachey*

Internalized NormsWhen Shame becomes Guilt*Georges de la Tour, Repentant Magdalene*There is a man inside me who is angry with me

*Visible Guilt and the Lemons Problem If Homo Economicus Had a Choice, Would He Want a Conscience? Robert Frank, 77 AER 593 (1987)

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*Visible Guilt and the Lemons Problem Which explains why we have faces

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*Visible Guilt and the Lemons Problem Speech is the gift God gave us to hide our thoughts. Talleyrand

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*Deception detection: Guilt and facial signalsZygomatic smilesZygomatic smilesPaul Ekman, Darwin and Facial Expressions (1973); What the Face Reveals (1997)*

*Whom would you vote for?Alexander Todorov et al., Inferences of competence from faces predict election outcomes, 308 Science 1623 (2005)*

*Microexpressions

We are able to detect visual cues that can be seen for only a fraction of a moment*

*MicroexpressionsDe la Tour, The Fortune Teller*

*Microexpressions*

Spot the liarTwo mothers. Which one killed her children?Mother OneMother Two**

*Microexpressions

We are able to detect visual cues that can be seen for only a fraction of a moment

Two stable equlibriaSociopathsThe rest of us*

Make the Mule*You are a plainclothes detective at LAX, charged with identifying drug smugglers as they exit a plane.

How do you pick them out?*

*Unbearable Guilt

Some Cold War History*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*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-235a few days after Hiroshima*

Some Cold War History*The RCMP passed on the information to MI-5*

Some Cold War History*Which assigned it to their head of Soviet Counter-IntelligenceKim Philby*

Kim Philbyhttp://www.youtube.com/watch?v=N2A2g-qRIaU

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OoopsI forgot a fifth enforcement strategy in the state of natureCan you think what it might be?**

Meet Nick the Chin*Im tinkin youse should pay what youse owe

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*Further readings

Kronman, Contract law in the State of Nature, 1 JLEO 5 (1980).*

*Contract Law IllegalityG:\IV. Illegality Perfectionism.ppt

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