George Mason School of Law
Contracts I
Q. Contract Law
in the State of Nature
F.H. Buckley
[email protected]
1
Recall the Bargaining Problem
 What if the seller must deliver before
buyer pays
 Or if the seller must pay before buyer
delivers
2
Contract Law as a solution
Leviathan
3
What if bargains aren’t possible?
Hobbes on the State of Nature

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)
Hobbes, Leviathan 14.18 (1651)
4
What if bargains aren’t possible?
Hobbes on the State of Nature

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.
Hobbes, Leviathan 14.18 (1651)
5
State of Nature
1. International Law
2. Weak Rule of Law
3. Unenforceability
6
State of Nature:
I. International Law
Signing of NAFTA Treaty 1992
7
2. Weak Rule of Law: Corruption
8
Thick and Thin Rule of Law
 Thick RoL: civil rights, democracy,
personal liberty
 Thin RoL: enforcement of contracts,
property rights
9
State of Nature:
3. Unenforceability
 Illegal Contracts
 Vague Contracts
 Uncertainty, Output, Requirements
 Opportunism and Contract Modification
 Mistake, Impracticability
10
Credible Commitments in a State of Nature
11
Credible Commitments in a State of Nature
1. Self-binding
12
Credible Commitments in a State of Nature
1. Self-binding
2. Union
13
Credible Commitments in a State of Nature
1. Self-binding
2. Union
3. Reciprocal Altruism
14
Credible Commitments in a State of Nature
1. Self-binding
2. Union
3. Reciprocal Altruism
4. Social and Internalized Norms
15
1. Self-binding
 I might persuade another party to
trust me if I make it difficult for me
to breach
16
Self-binding: Ulysses and the Sirens
17
Self-binding: Hostages
 I might persuade another party to
trust me if I make it painful for me to
breach
 The use of hostages
18
Self-binding: Hostages
 Why are hostages killed if
ransoms are not paid?
19
Self-binding: Hostages
 Why might a retailer refuse to
settle slip-and-falls?
20
Self-binding: Rings
Brinig, Rings and Promises, 6 JLEO 203 (1990)
21
Self-binding: Secured Lending
22
2. Union strategies
23
Union strategies
Marriage amongst princely families
Victoria and Albert, 1840
24
Union strategies: Families
Doug Allen and Dean Lueck, The Nature of the Farm (MIT
Press, 2003)
25
Union strategies: Vertical Integration
As a response to
post-contractual
opportunism:
Klein, Crawford,
Alchian, 21 J.L. &
Econ. 297 (1978)
Armen Alchian
26
3. Reciprocal Altruism
27
3. Reciprocal Altruism
Robert Trivers,
46 Quart. Rev. Biol. 35 (1971)
28
A genetic basis to reciprocal
altruism?
Fish employing the cooperative strategy
29
A genetic basis to reciprocal
altruism?
30
Reciprocal Altruism in Game Theory
 Axelrod, The Evolution of
Cooperation (1984)
 Tit-for-tat as a dominant strategy for
iterated PD games
31
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
32
The winner and loser…
Anatol Rapoport
33
Gordon Tullock
TFT in action:
The Christmas truce of 1914
Ver ist der
turkey?
Und der
Belgians?
34
You’re a
good sort,
Fritzie, for
a Hun…
TFT in action:
Posner and Goldsmith on Ambassadors in
International Law
35
Carpaccio, The Legend of St. Ursula:
The Arrival of the English Ambassadors
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.
36
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?
37
Example of TFT communities
Old-boy networks
Bullington Club
members, 1987
2. David Cameron
8. Boris Johnson
38
Examples of TFT communities
“Americans like to form clubs.” Tocqueville
“Americans
like to form
clubs”
39
Racial Communities
Diamond district, West 47th Street, NYC
L. Bernstein, 21 J. Legal Stud. 115 (1992)
40
4. Social and Internalized Norms
 Ruth Benedict on shame cultures
 The Chrysanthemum and the Sword (1989)
41
Social Norms: Honor
Not fight? “I would feel
terrible shame
before the Trojans
and their wives
of the flowing robes.”
Iliad 6:441
42
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 the
loss of the one man who might
have kept you free."
Hector to Andromache.
43
Social Norms: Honor
44
Social Norms Today?
45
Lytton Strachey
Yet we never lack for social norms
46
Lytton Strachey
Internalized Norms
When Shame becomes Guilt
“There is a man
inside me who
is angry with me”
Thomas Browne
Georges de la Tour,
Repentant Magdalene
47
Visible Guilt and the Lemons Problem
 If Homo Economicus Had a Choice,
Would He Want a Conscience?
 Robert Frank, 77 AER 593 (1987)
48
Visible Guilt and the Lemons Problem
 Which explains why we have faces…
49
Deception detection: Guilt and facial signals
Zygomatic smiles
Zygomatic smiles
50
Paul 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)
51
Microexpressions
 We are able to detect visual cues that
can be seen for only a fraction of a
moment
52
Microexpressions
De la Tour, The Fortune Teller
53
Microexpressions
De la Tour, The Fortune Teller
54
Microexpressions
De la Tour, The Fortune Teller
55
Microexpressions
De la Tour, The Fortune Teller
56
Microexpressions
De la Tour, The Fortune Teller
57
Microexpressions
De la Tour, The Fortune Teller
58
Microexpressions
59
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?
60
How the Cold War Began
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
61
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-235—a few days
after Hiroshima
62
Some Cold War History…
The RCMP passed on the information to MI-5
63
Some Cold War History…
Which assigned it to
their head of Soviet
Counter-Intelligence…
Kim Philby
64
Some Cold War History…
Who said ”we’re not
concerned”
65
Some Cold War History…
But Gouzenko’s work on
Venona helped unmask
Burgess, Maclean and
Philby (and Alger Hiss)
66
Kim Philby
 http://www.youtube.com/watch?v=N
2A2g-qRIaU
67
Ooops…
I forgot a fifth enforcement strategy in the
state of nature
 Can you think what it might be?
68
Meet Nick the Chin
I’m tinkin’
youse
should pay
what youse
owe
69