Monday, March 20, 2006

Should Contracts Made Under Duress be Enforceable?

A mugger in a dark alley offers you a bargain: A hundred dollars for your life. Since you are not carrying that much cash, you ask if he will take a check. When you get home, you can and will stop payment—contracts made under duress are not enforceable. Knowing this he either refuses your check or accepts it, renegs on his side of the bargain, and cashes it before the news reaches your bank.

You prefer paying a hundred dollars to being killed, he prefers receiving a hundred dollars to killing you. It occurs to you that even a contract made under duress produces benefits for both parties and so should be enforceable. What’s the problem?

The problem is that making such contracts enforceable makes mugging more profitable, and so makes it more likely that you will be offered similar bargains in other dark alleys in the future. Whether contracts made under duress ought to be enforceable depends, economically speaking, on elasticity at the two margins. Where making the contract enforceable results in a large increase in how often duress occurs but only a small decrease in the damage done each time–almost certainly the case in my mugging example–we are better off if such contracts are unenforceable.

A few hundred years ago, prisoners of war were routinely asked to give their word not to try to escape and then permitted to wander around unguarded. Sometimes the prisoner was even permitted to go home, having promised not to rejoin his army until he had been exchanged for a prisoner of equal rank from the other side. A prisoner who violated his parole had proved that he was not a gentleman and treated accordingly by people on his own side. The parole system made war somewhat less costly for both sides and so presumably increased the amount of war, but it seems unlikely that the effect was very great. It substantially decreased the cost born by captive and captor. Its eventual breakdown during the Napoleonic wars probably made the world a worse place.

For a similar tradeoff in a different context, consider the question of whether Augusto Pinochet ought to be tried for crimes he was accused of committing while dictator of Chile. Enforcing the terms of an agreement that immunizes an ex-dictator from prosecution makes it less expensive for dictators to commit crimes while in power. But refusing to enforce the terms of such agreements makes it more expensive for dictators to give up power. Pinochet is one of the rare examples of a dictator who voluntarily relinquished power to an elected government. If his reward is a jail cell, the next dictator may not make that mistake.

In all of these cases, the agreement was made under duress: the threat of killing you, of keeping a prisoner of war locked up, of keeping dictatorial control over a country. The same is true of a peace treaty—threatening to drop bombs on someone until he agrees to your terms is about as clear a case of duress as one can find. Yet most of us feel as though it is a good thing for treaties to be kept, in part because, in a world where a treaty is only a piece of paper, it is hard to end a war short of annihilation of the loser.

Science fiction readers may want to consider the reaction of the aliens in Footfall, by Niven and Pournelle, to individual humans who surrender and then violate their "parole."


At 5:25 PM, March 20, 2006, Anonymous Anonymous said...

I'm not sure Footfall is a very good analogy here. It's true that the contract was under duress, and that the aliens had the expectation that it would be honored. However, there's a major difference, which is that in most cases the submitting humans had no idea what contract they just agreed to.

This is another out for contract enforcement, at least in this country. Perhaps the lesson is to beware when you are invading a country where you have significantly different cultural expectations about acceptable behavior.

At 6:36 PM, March 20, 2006, Anonymous Anonymous said...

You'd think that this "parole" system would give soldiers incentive to be captured by the enemy. I mean, if you get to go *home*, and your own side would consider you tainted for refusing to do so ... well, that's a much better deal than getting killed.

At 8:25 PM, March 20, 2006, Anonymous Anonymous said...

if you get to go *home*, and your own side would consider you tainted for refusing to do so ... well, that's a much better deal than getting killed.

But not necessarily a better deal than collecting a lot of loot or ransoms of your own. The system worked best when there were big incentives for the individuals to fight, not just the leaders of the individuals.

This might be part of the reason why it broke down once conscription and mass armies arrive on the scene. I may well be happy to quit the war, but the guy who forced me into it won't take the same view of things.

At 2:18 AM, March 21, 2006, Anonymous Anonymous said...

Exactly. By the time you get captured you have probably been through most of the risk of battle, and the best bit is to come (the looting). Remember the prospect of looting used to be a very powerful motivator for fighting.

At 2:30 PM, March 21, 2006, Anonymous Anonymous said...

tom courtney, edgr,

Ah, that makes sense. Thanks.

At 11:09 PM, March 22, 2006, Blogger montestruc said...

Would not taxes, eminent domain, plea bargains and the draft be examples of contracts made under duress? Perhaps the real change is that now governments do not recognize contracts made under duress with anyone other than a "legal" government.

At 3:03 AM, March 23, 2006, Anonymous Anonymous said...

montestruc: I think that is self-evident

At 3:04 AM, March 23, 2006, Anonymous Anonymous said...

Although, just because it is self-evident does not mean that it is not worth noting, simply so that it doesn't get forgotten


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