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

2. Housekeeping  Statutory Supplement Dawn Moore had sold copies less author’s discount till Aug. 25, but will still sell them if you contact her at 993- 8093 or dmoore@gmu.edu (after 500 pm) or Katie Hickey at 993-8271 (before 400 pm)dmoore@gmu.edu 2

3. Housekeeping  For Next Week Illegality 3

4. 4 Hobbes on the State of Nature Hobbes, 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. 4

5. 5 Contract Law as a solution  Suppose that the defector is penalized through legal sanctions so that the incentive to defect disappears. 5

6. 6 Contract Law as a solution Leviathan Upon Earth there is not his like (Job 41:33) 6

7. 7 But what if we’re in a State of Nature?  Where there is no legal enforcement of contracts… 7

8. 8 States of Nature 1.International “law” 8

9. 9 States of Nature 1.International “law” 2.Weak rule of law 9

10. 10 States of Nature 1.International “law” 2.Weak rule of law 3.Legally unenforceable promises 10

11. 11 1.International Law Signing of NAFTA Treaty 1992 11

12. 12 2.Weak Rule of Law  Just what does the rule of law mean? 12

13. 13 2.Weak Rule of Law: Corruption Deputy Mayor of Moscow Vladimir Resin sporting a $360,000 wristwatch 13

14. 2.Weak Rule of Law: Corruption 14 Fisman and Miguel, Cultures of Corruption: Evidence from Diplomatic Parking Tickets, 115 JPE1020 (2007)

15. 2.Weak Rule of Law: Corruption 15

16. 16

17. 17 2.Weak Rule of Law 17

18. 18 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? 18 “Telephone Justice”

19. 19 2.Weak Rule of Law: Law vs. Politics: Raison d’Etat 19 Section Spéciale, Costa Garvas 1975

20. 20 2.Weak Rule of Law: Law vs. Politics  Are we sure we subscribe to the ideal of neutral legal principles, shorn of politics? 20 Duncan Kennedy

21. 21 2.Weak Rule of Law Thick and Thin  Just what does the rule of law mean? Thick RoL: civil rights, democracy, personal liberty Thin RoL: enforcement of contracts, property rights 21

22. 22 2.Weak Rule of Law Thick and Thin  Just what does the rule of law mean? Thick RoL: civil rights, democracy, personal liberty Thin RoL: enforcement of contracts, property rights Must they go together?  Washington Consensus vs. Beijing Consensus 22

23. 23 3.Legal Unenforceability  Examples? 23

24. 24 But what if we’re in a State of Nature? Unenforceability Marriage under no-fault 24

25. 25 But what if we’re in a State of Nature? Unenforceability Bankruptcy 25

26. 26 But what if we’re in a State of Nature? Unenforceability Illegal Contracts 26

27. 27 But what if we’re in a State of Nature? Unenforceability Vague Contracts 27

28. 28 But what if we’re in a State of Nature? Unenforceability Social and Family Promises 28

29. 29 But what if we’re in a State of Nature? Unenforceability Excessive legal excuses? 29 Justice Roger Traynor

30. An Excess of Law? 30 Magee, The Optimum Number of Lawyers, 17 Law and Social Inquiry 667 (1992)

31. 31 Can one make credible commitments in a State of Nature? 31

32. 32 Credible Commitments in a State of Nature 1.Self-binding 32

33. 33 Credible Commitments in a State of Nature 1.Self-binding 2.Union 33

34. 34 Credible Commitments in a State of Nature 1.Self-binding 2.Union 3.Reciprocal Altruism 34

35. 35 Credible Commitments in a State of Nature 1.Self-binding 2.Union 3.Reciprocal Altruism 4.Social and Internalized Norms 35

36. 36 Further readings  Kronman, Contract law in the State of Nature, 1 JLEO 5 (1980). 36

37. 37 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? 37

38. 38 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 38

39. 39 1.Self-binding The Burghers of Calais Rodin 1885 39

40. 40 1.Self-binding Not hostages: The burgers of Calais 40 McDonald's at Walmart, 8 South St., Calais, ME 04619

41. 41 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 41

42. 42 CooperateDefect Cooperate Fights for Richard -10, 3 Defect Fights for Bolingbroke 10, -10 Richard III Derby 1.Self-binding: Hostages Before taking hostages: Defection dominates for Derby 

43. 43 Cooperate Doesn’t kill son Defect Kills son Cooperate Fights for Richard -10, 3 Defect Fights for Bolingbroke 10, -10-1000, -10 Richard III Derby 1.Self-binding: Hostages After taking hostages: Defection no longer dominates for Derby  

44. 44 1.Self-binding: Hostages What is needed to make the hostage game work Derby places a greater value on his son’s life than he does on fighting for Bolingbroke 44

45. 45 1.Self-binding: Hostages What is needed to make the hostage game work Derby places a greater value on his son’s life than he does on fighting for Bolingbroke Bolingbroke can’t compensate Derby for the loss of his son 45

46. 46 1.Self-binding: Hostages What is needed to make the hostage game work Derby places a greater value on his son’s life than he does on fighting for Bolingbroke Bolingbroke can’t compensate Derby for the loss of his son Derby places a higher value on his son’s life than Richard III does on the son’s life or death 46

47. 47 1.Self-binding: Pawnbrokers 47

48. 48 1.Self-binding: Pawnbrokers  In a possessory security interest, the borrower values the collateral more than the lender, which makes the promise of repayment credible 48

49. 49 1.Self-binding: Pawnbrokers  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 interests—and why they’re not 49

50. 50 1.Self-binding: Rings 50

51. 51 1.Self-binding: Romantic Love 51 Millais, Ophelia

52. 52 1.Self-binding: Reputations  Why are hostages killed if ransoms are not paid? 52

53. 53 1.Self-binding: Reputations  Why might a retailer refuse to settle slip-and-falls? 53

54. 54 2.Union strategies 54 “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.”

55. 55 2.Union strategies Families Allen and Lueck, The Nature of the Farm 55

56. 56 2.Union strategies Marriage amongst princely families Victoria and Albert, 1840 56

57. 57 2.Union strategies Vertical Integration Armen Alchian As a response to post-contractual opportunism: Klein, Crawford, Alchian, 21 J.L. & Econ. 297 (1978) 57

58. 58 Post-contractual opportunism But see R.H. Coase, The Acquisition of Fisher Body by General Motors, 43 J.L.E. 15 (2000) 58

59. 59 3.Reciprocal Altruism Robert Trivers, 46 Quart. Rev. Biol. 35 (1971) 59

60. 60 A genetic basis to reciprocal altruism? 60 Fish employing the defect strategy

61. 61 A genetic basis to reciprocal altruism? 61 Fish employing the cooperative strategy

62. 62 A genetic basis to reciprocal altruism? 62

63. 63 Reciprocal Altruism in Game Theory  Axelrod, The Evolution of Cooperation (1984) Tit-for-tat as a dominant strategy for iterated PD games 63

64. 64 Reciprocal Altruism in Game Theory Round 1: Cooperate or Defect Round 2: Cooperate or Defect Round 3: Cooperate or Defect Round 4: Cooperate or Defect Round 5: Cooperate or Defect Round 6: Cooperate or Defect Round 7: Cooperate or Defect Round 8: Cooperate or Defect Round 9: Cooperate or Defect Round 10: Cooperate or Defect Round 11: Cooperate or Defect Round 12: Cooperate or Defect Round 13: Cooperate or Defect Round 14: Cooperate or Defect Round 15: Cooperate or Defect Round 16: Cooperate or Defect Round 17: Cooperate or Defect Round 18: Cooperate or Defect Round 19: Cooperate or Defect Round 20: Cooperate or Defect Round 21: Cooperate or Defect Round 22: Cooperate or Defect Round 23: Cooperate or Defect Round 24: Cooperate or Defect Round 25: Cooperate or Defect Round 26: Cooperate or Defect Round 27: Cooperate or Defect Round 28: Cooperate or Defect Round 29: Cooperate or Defect Round 30: Cooperate or Defect Axelrod’s Iterated Prisoners’ Dilemma 64

65. The winner and loser… Anatol Rapoport Gordon Tullock 65

66. 66 TFT in action: The Christmas truce of 1914 You’re a good sort, Fritzie, for a Hun… Ver ist der turkey? Und der Belgians? 66

67. 67 TFT in action: Posner and Goldsmith on Ambassadors in International Law Carpaccio, The Legend of St. Ursula: The Arrival of the English Ambassadors 67

68. 68 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. 68

69. 69 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? 69

70. 70 Example of TFT communities Old-boy networks Bullington Club members, 1987 2. David Cameron 8. Boris Johnson 70

71. 71 Examples of TFT communities “ Americans like to form clubs.” Tocqueville “Americans like to form clubs” 71

72. 72 Racial Communities Diamond district, West 47 th Street, NYC L. Bernstein, 21 J. Legal Stud. 115 (1992) 72

73. 73 4.Social and Internalized Norms  Ruth Benedict on shame cultures The Chrysanthemum and the Sword (1989) 73

74. 74 Social Norms: Honor 74 Not fight? “I would feel terrible shame before the Trojans and their wives of the flowing robes.” Iliad 6:441

75. 75 Social Norms: Honor 75 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 the loss of the one man who might have kept you free." Hector to Andromache.

76. Social Norms: Honor 76

77. Social Norms Today? 77 Lytton Strachey 77

78. Yet we never lack for social norms 78 Lytton Strachey 78

79. Internalized Norms When Shame becomes Guilt 79 Georges de la Tour, Repentant Magdalene 79 “There is a man inside me who is angry with me”

80. 80 Visible Guilt and the Lemons Problem  If Homo Economicus Had a Choice, Would He Want a Conscience? Robert Frank, 77 AER 593 (1987) 80

81. 81 Visible Guilt and the Lemons Problem  Which explains why we have faces… 81

82. 82 Visible Guilt and the Lemons Problem  “Speech is the gift God gave us to hide our thoughts.” Talleyrand 82

83. 83 Deception detection: Guilt and facial signals Zygomatic smiles Zygomatic smiles Paul Ekman, Darwin and Facial Expressions (1973); What the Face Reveals (1997) 83

84. 84 Whom would you vote for? Alexander Todorov et al., Inferences of competence from faces predict election outcomes, 308 Science 1623 (2005) 84

85. 85 Microexpressions  We are able to detect visual cues that can be seen for only a fraction of a moment 85

86. 86 Microexpressions De la Tour, The Fortune Teller 86

87. 87 Microexpressions De la Tour, The Fortune Teller 87

88. 88 Microexpressions De la Tour, The Fortune Teller 88

89. 89 Microexpressions De la Tour, The Fortune Teller 89

90. 90 Microexpressions De la Tour, The Fortune Teller 90

91. 91 Microexpressions De la Tour, The Fortune Teller 91

92. 92 Microexpressions 92

93. Spot the liar  Two mothers. Which one killed her children? Mother One Mother Two 93

94. 94 Microexpressions  We are able to detect visual cues that can be seen for only a fraction of a moment  Two stable equlibria Sociopaths The rest of us 94

95. Make the Mule 95 You are a plainclothes detective at LAX, charged with identifying drug smugglers as they exit a plane. How do you pick them out? 95

96. 96 Unbearable Guilt

97. Some Cold War History… 97 In September 1945 Soviet cipher clerk Igor Gouzenko defected and told the RCMP of an espionage apparatus at the Anglo-Canadian nuclear research center in Montreal 97

98. Some Cold War History… 98 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 98

99. Some Cold War History… 99 The RCMP passed on the information to MI-5 99

100. Some Cold War History… 100 Which assigned it to their head of Soviet Counter-Intelligence… Kim Philby 100

101. Kim Philby  http://www.youtube.com/watch?v=N 2A2g-qRIaU http://www.youtube.com/watch?v=N 2A2g-qRIaU 101

102. Ooops… I forgot a fifth enforcement strategy in the state of nature  Can you think what it might be? 102

103. Meet Nick the Chin 103 I’m tinkin’ youse should pay what youse owe 103

104. 104 Further readings  Kronman, Contract law in the State of Nature, 1 JLEO 5 (1980). 104

105. 105 Contract Law Illegality G:\IV. Illegality Perfectionism.ppt 105