George Mason School of Law

1. George Mason School of Law Contracts I D. Theories of Enforcement F.H. Buckley fbuckley@gmu.edu

2. Today • Some remaining problems with Paretian ethics • Fairness in division • Greed • Envy • Darwinian economics • Promising from a libertarian, non-economic perspective • Quasi-contract

3. Fairness in division

4. Fairness in division • Some of you had problems with Paretianethics • One person better off, no one worse off

5. As it happens, a little green man just gave me $100 The ultimatum game And he asked me to divide it with you

6. As it happens, a little green man just gave me $100 And if you turned down $5 you’re not a Paretian

7. As it happens, a little green man just gave me $100 You “paid to punish”

8. Fairness in division • The Paretian is indifferent about how the bargaining gains are to be divided • One can’t say “that wasn’t a fair split”

9. The move from A to either B or C is a Pareto-superior transformation Bess E  A  C F    B  D Mary

10. Anything within the bargaining lens works Bess E  A  C F    B  D Mary

11. Are you OK with that?

12. What about greed?

13. Do Paretian standards celebrate greed? Greed is good!

14. More is better: I2 > I1 Dollars in Time 1 More is better I2 I1 0 Dollars in Time 2

15. Is acquisitiveness always bad? I’m not into the whole rat race thing, man!

16. Can you distinguish between normal acquisitiveness and greed?

17. How does envy come in? Gericault, Portrait

18. How does envy come in? • The Paretian is not a “nontruist,“ not an altruist. • He doesn’t have preferences as to other people

19. Varieties of envy • The Paretian is not a “nontruist,“ not an altruist. • He doesn’t have preferences as to other people • Which excludes both charity (positive altruism) and spite (negative altruism)

20. Varieties of envy • Is Spite always bad?

21. Malicious SpiteGreat Expectations’ Miss Havisham X imposes a cost on Y

22. But there’s also Benign Spite: Horatio at the Bridge X imposes a cost on Y to benefit Z

23. As it happens, a little green man just gave me $100 You “paid to punish”: Was that benign or malicious spite?

24. Now … Darwinian Economics

25. W.D. Hamilton

26. Hamilton on the Gene’s Eye ViewThe selfish gene • Bodies are temporary, genes (or their copies) are forever • The gene directs the body

27. Hamilton on the Gene’s Eye ViewThe selfish gene • The gene’s command to the body: • Be fruitful and multiply

28. Hamilton on the Gene’s Eye ViewThe selfish gene • The gene’s command to the body: • Be fruitful and multiply • Maximize the (copies of the) gene • Max B (genetic fitness) – C (genetic cost)

29. Hamilton’s insightWhat about relatives? • From the gene’s perspective, promoting genetic success includes kin with whom one shares one’s genes • The coefficient of relatedness r

30. What about relatives? • What is r? • We share 50% of our genes with our parents, children and (non-identical) siblings, and 25% with grandchildren

31. Hamilton’s Rule • Gene to Body: be altruistic if • rB > C, where • r = the genetic relatedness of the recipient to the actor, B = reproductive benefit gained by the recipient of the altruistic act, • C = reproductive cost to the individual performing the act

32. Altruism and Kinship Selection • Gene to Body: be altruistic if • rB > C, where • r = the genetic relatedness of the recipient to the actor, B = reproductive benefit gained by the recipient of the altruistic act, • C = reproductive cost to the individual performing the act • JBS Haldane: I would give my life for two brothers or eight grandchildren

33. Altruism and kinship selection • One imagines r taking a value between 0 and 1 • But can you see how r might be greater than 1?

34. George VI bids goodbye to Princess ElizabethJan. 31, 1952

35. For George VI, as to Elizabeth r = 2.5 in three generations

36. Asymmetry of relatedness • Which is how we are to understand the social contract

37. Cordelia understood this, Lear didn’t CORDELIA: I love your majesty according to my bond; nor more nor less.

38. Hamilton’s RuleAltruism and kinship selection • Can you see how r might be less than 1?

39. Hamilton’s RuleAltruism and kinship selection • Benign spite: • Suppose I wish to impose a genetic cost on Y (to whom I am unrelated) in order to confer a genetic benefit on Z (with whom I am related and with whom Y is in competition) • In that case ry – rz is a negative number

40. The limits of kinship selection • Such altruism as we see, amongst men and animals, is importantly explained as a genetic survival instinct that prefers brothers to strangers

41. Strangers vs. Brothers • Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the Lord thy God may bless thee • Deuteronomy 23:20.

42. Hume on promising “Men being naturally selfish, or endow'd only with a confin'd generosity, they are not easily induc'd to perform any action for the interest of strangers, except with a view to some reciprocal advantage.”

43. What kind of economy would we have in a kinship selection society?

44. What kind of economy would we have in a kinship selection society? Edward Banfield’s “Montegrano” Chiaramonte, Italy

45. What’s the take-away from Darwinian Economics? • Spite as a barrier to Coasian bargains. • You turned down the ultimatum game.

46. What’s the take-away from Darwinian Economics? • Families matter in business • A constrained sympathy for non-family

47. What’s the take-away from Darwinian Economics? • The bequest motive in tax law

48. What’s the take-away from Darwinian Economics? • Inequality and immobility • Is aristocracy the natural state of society? • What happens when a sense of relative preferences is added to the bequest motive? • How then would you expect the law to look?

49. What’s the take-away from Darwinian Economics? • Inequality and immobility • Is aristocracy the natural state of society? • How would you design contract law to produce an aristocracy?

50. Why perform promises? • Efficiency and Libertarian (autonomy) theories