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

2. 2 The Exam: Laptops 2

3. 3 Relational Contracts and Bargaining  What if seller must deliver before buyer pays  Or if seller must pay before buyer delivers 3

4. 4 Contract Law as a solution Leviathan 4

5. 5  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) 5 What if bargains aren’t possible? Hobbes on the State of Nature Hobbes, Leviathan 14.18 (1651)

6. 6  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. 6 What if bargains aren’t possible? Hobbes on the State of Nature Hobbes, Leviathan 14.18 (1651)

7. 7 State of Nature 1.International Law 2.Weak Rule of Law 3.Unenforceability 7

8. 8 State of Nature: I.International Law Signing of NAFTA Treaty 1992 8

9. 2.Weak Rule of Law: Corruption 9

10. 10 Thick and Thin Rule of Law  Thick RoL: civil rights, democracy, personal liberty  Thin RoL: enforcement of contracts, property rights  Washington Consensus vs Beijing Consensus 10

11. 11 State of Nature: 3.Unenforceability Illegal Contracts Vague Contracts  Uncertainty, Output, Requirements Opportunism and Contract Modification  Mistake, Impracticability 11

12. 12 Credible Commitments in a State of Nature 12

13. 13 Credible Commitments in a State of Nature 1.Self-binding 13

14. 14 Credible Commitments in a State of Nature 1.Self-binding 2.Union 14

15. 15 Credible Commitments in a State of Nature 1.Self-binding 2.Union 3.Reciprocal Altruism 15

16. 16 Credible Commitments in a State of Nature 1.Self-binding 2.Union 3.Reciprocal Altruism 4.Social and Internalized Norms 16

17. 17 1.Self-binding  I might persuade another party to trust me if I make it difficult for me to breach 17

18. 18 Self-binding: Ulysses and the Sirens 18

19. 19 Self-binding: Hostages  I might persuade another party to trust me if I make it painful for me to breach The use of hostages 19

20. 20 Self-binding: Hostages  Why are hostages killed if ransoms are not paid? 20

21. 21 Self-binding: Hostages  Why might a retailer refuse to settle slip-and-falls? 21

22. 22 Self-binding: Rings Brinig, Rings and Promises, 6 JLEO 203 (1990) 22

23. 23 Self-binding: Secured Lending 23

24. 24 2.Union strategies 24

25. 25 Union strategies Marriage amongst princely families Victoria and Albert, 1840 25

26. 26 Union strategies: Families Doug Allen and Dean Lueck, The Nature of the Farm (MIT Press, 2003) 26

27. 27 Union strategies: Vertical Integration Armen Alchian As a response to post-contractual opportunism: Klein, Crawford, Alchian, 21 J.L. & Econ. 297 (1978) 27

28. 28 3.Reciprocal Altruism 28

29. 29 3.Reciprocal Altruism Robert Trivers, 46 Quart. Rev. Biol. 35 (1971) 29

30. 30 A genetic basis to reciprocal altruism? 30 Fish employing the cooperative strategy

31. 31 A genetic basis to reciprocal altruism? 31

32. 32 Reciprocal Altruism in Game Theory  Axelrod, The Evolution of Cooperation (1984) Tit-for-tat as a dominant strategy for iterated PD games 32

33. 33 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 33

34. The winner and loser… Anatol Rapoport Gordon Tullock 34

35. 35 TFT in action: The Christmas truce of 1914 You’re a good sort, Fritzie, for a Hun… Ver ist der turkey? Und der Belgians? 35

36. 36 TFT in action: Posner and Goldsmith on Ambassadors in International Law Carpaccio, The Legend of St. Ursula: The Arrival of the English Ambassadors 36

37. 37 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. 37

38. 38 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? 38

39. 39 Example of TFT communities Old-boy networks Bullington Club members, 1987 2. David Cameron 8. Boris Johnson 39

40. 40 Examples of TFT communities “ Americans like to form clubs.” Tocqueville “Americans like to form clubs” 40

41. 41 Racial Communities Diamond district, West 47 th Street, NYC L. Bernstein, 21 J. Legal Stud. 115 (1992) 41

42. 42 4.Social and Internalized Norms  Ruth Benedict on shame cultures The Chrysanthemum and the Sword (1989) 42

43. 43 Social Norms: Honor 43 Not fight? “I would feel terrible shame before the Trojans and their wives of the flowing robes.” Iliad 6:441

44. 44 Social Norms: Honor 44 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.

45. Social Norms: Honor 45

46. Social Norms Today? 46 Lytton Strachey 46

47. Yet we never lack for social norms 47 Lytton Strachey 47

48. Internalized Norms When Shame becomes Guilt 48 Georges de la Tour, Repentant Magdalene 48 “There is a man inside me who is angry with me” Thomas Browne

49. 49 Visible Guilt and the Lemons Problem  If Homo Economicus Had a Choice, Would He Want a Conscience? Robert Frank, 77 AER 593 (1987) 49

50. 50 Visible Guilt and the Lemons Problem  Which explains why we have faces… 50

51. 51 Deception detection: Guilt and facial signals Zygomatic smiles Zygomatic smiles Paul Ekman, Darwin and Facial Expressions (1973); What the Face Reveals (1997) 51

52. 52 Whom would you vote for? Alexander Todorov et al., Inferences of competence from faces predict election outcomes, 308 Science 1623 (2005) 52

53. 53 Microexpressions  We are able to detect visual cues that can be seen for only a fraction of a moment 53

54. 54 Microexpressions De la Tour, The Fortune Teller 54

55. 55 Microexpressions De la Tour, The Fortune Teller 55

56. 56 Microexpressions De la Tour, The Fortune Teller 56

57. 57 Microexpressions De la Tour, The Fortune Teller 57

58. 58 Microexpressions De la Tour, The Fortune Teller 58

59. 59 Microexpressions De la Tour, The Fortune Teller 59

60. 60 Microexpressions 60

61. Make the Mule 61 You are a plainclothes detective at LAX, charged with identifying drug smugglers as they exit a plane. How do you pick them out? 61

62. How the Cold War Began 62 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 62

63. Some Cold War History… 63 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 63

64. Some Cold War History… 64 The RCMP passed on the information to MI-5 64

65. Some Cold War History… 65 Which assigned it to their head of Soviet Counter-Intelligence… Kim Philby 65

66. Some Cold War History… 66 Who said ”we’re not concerned” 66

67. Some Cold War History… 67 But Gouzenko’s work on Venona helped unmask Burgess, Maclean and Philby (and Alger Hiss) 67

68. Kim Philby  http://www.youtube.com/watch?v=N 2A2g-qRIaU http://www.youtube.com/watch?v=N 2A2g-qRIaU 68

69. Ooops… I forgot a fifth enforcement strategy in the state of nature  Can you think what it might be? 69

70. Meet Nick the Chin 70 I’m tinkin’ youse should pay what youse owe 70