George Mason School of Law

1. George Mason School of Law Contracts I Contract Law in the State of Nature F.H. Buckley fbuckley@gmu.edu

2. Next Day • Vices of Capacity: • A. Rational Choice • B. Children

3. Contract Law as a solution to bargaining problems • Suppose that the defector is penalized through legal sanctions so that the incentive to defect disappears.

4. Contract Law as a solutionLeviathan

5. But what if we’re in a state of nature • International Law • Weak rule of law • Unenforceable agreements • Transaction costs of litigation

6. But what if we’re in a State of Nature?1. International Law Signing of NAFTA Treaty 1992

7. But what if we’re in a State of Nature?2.Weak Rule of Law Deputy Mayor of Moscow Vladimir Resin sporting a $360,000 wristwatch

8. 2. Weak Rule of LawMeasures of Government Corruption

9. 2. Weak Rule of LawMeasures of Government Corruption Transparency International

10. But what if we’re in a State of Nature?3. Unenforceability • Examples?

11. But what if we’re in a State of Nature?Unenforceability • Marriage under no-fault • Illegal Contracts • Vague Contracts • Social Promises

12. Credible Commitments in a State of Nature: Five Strategies • Self-binding • Union • Reciprocal Altruism • Social and Internalized Norms • Self-enforcing agreements

13. Credible Commitments1. Self-binding

14. 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

15. Hostages: The Burghers of Calais Rodin 1885

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

17. 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.

18. Modern examples of hostages to solve the problem of trust in bargaining • Bankruptcy and secured lending

19. Modern examples of hostages to solve the problem of trust in bargaining • Bankruptcy and secured lending • Rings

20. Modern examples of hostages to solve the problem of trust in bargaining • Bankruptcy and secured lending • Rings • Romantic love

21. Modern examples of hostages to solve the problem of trust in bargaining • Bankruptcy and secured lending • Rings • Romantic love • Reputations

22. 2. Union strategies Allen and Lueck, The Nature of the Farm

23. 2.Union strategiesMarriage amongst princely families Victoria and Albert, 1840

24. 2. Union strategiesVertical Integration As a response to post-contractual opportunism: Klein, Crawford, Alchian, 21 J.L. & Econ. 297 (1978) Armen Alchian

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

26. Credible Commitments3.Reciprocal Altruism A genetic basis to reciprocal altruism? Robert Trivers, 46 Quart. Rev. Biol. 35 (1971)

27. A genetic basis to reciprocal altruism?

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

29. Reciprocal Altruism in Game Theory Axelrod’s Iterated Prisoners’ Dilemma

30. The winner and loser… Anatol Rapoport Gordon Tullock

31. TFT in action: The Christmas truce of 1914 You’re a good sort, Fritzie, for a Hun… Ver ist der turkey? Und der Belgians?

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

33. 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.

34. 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?

35. Example of TFT communitiesOld-boy networks Bullington Club members, 1987 2. David Cameron 8. Boris Johnson

36. Examples of TFT communitiesAlexis Tocqueville “Americans like to form clubs”

37. Racial CommunitiesDiamond district, West 47th Street, NYC L. Bernstein, 21 J. Legal Stud. 115 (1992)

38. Credible Commitments4. Social and Internalized Norms • Ruth Benedict on shame cultures • The Chrysanthemum and the Sword (1989)

39. 4. Social Norms David, Andromache Mourning Hector

40. 4. Social Norms Handing out the white feather

41. Just how long did that last? Lytton Strachey

42. But still… • Consider the following examples of cooperative behavior: • Not littering • Gas Guzzlers • Helping out in an emergency: the Good Samaritan

43. Yet we never lack for social norms Lytton Strachey 43

44. What happens when shame is internalized? “There is a man inside me who is angry with me” Sir Thomas Browne Georges de la Tour, Repentant Magdalene

45. Why Guilt is Good for You • If Homo Economicus Had a Choice, would he want a conscience? • Robert Frank, 77 AER 593 (1987)

46. 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

47. 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)

48. Guilt Explains Why We Have Faces Whom would you vote for? Sen Russ Feingold (Dem. WI)

49. Guilt Explains Why We Have Faces And this time?

50. Guilt Explains Why We Have Faces And this time? Sen. Ron Johnson (Rep. WI)