Some brief observations about contract theory
Some brief observations about contract theory
General Contract Theory.
Most contract theorists share five common presuppositions:
- Relative equality of need. Each of us has basic things
needed to survive which are common to everyone, such as food,
shelter, and so on.
- Relative scarcity of goods. Some or many of the goods
that we want are not going to be in such supply that not
everyone will be able to freely get as much as they want.
Thus, there will be competing desires between people for
- Relative equality of power. None of us is so much
stronger or smarter than the others that we are invulnerable.
Each of us could be harmed and even killed by others.
- Limited altruism. Each of us is self-interested to some
degree so that we are not completely altruistic. When one
agent's interests conflict with the interests of another
agent, it is often the case that the agent will not give up
their interests without some sanction.
- Minimal rationality of the agents involved.
Game Theory Example: The Prisoner's Dilemma
Using a branch of mathematics called game theory, it can be
illustrative to show how social arrangements can naturally lead to
suboptimal arrangements. This shows us that we cannot just assume
that an unreflective social arrangement is best or even just
Imagine that the police arrest you and charge you with being a spy.
They also say that they have arrested a Mr. Smith, whom you do not
know, and they claim he is your co-conspirator. You do never see or
talk with Smith. They ask you to confess, and offer you the following
They also tell you that Smith is getting the same deal.
- If you confess and Smith does not, you get 1 year in prison.
- If you and Smith both do not confess, you get 2 years.
- If you both confess, you get 5 years
- If you don't confess and Smith does, you get 10 years.
If you are trying to minimize your time in prison, you are best off to
confess. (Why? Recall that there are two cases: Smith confesses, and
Smith doesn't. What should you do in each case?) But Smith should then do the
same. Hence, you both get 5 years. If you could have communicated
and made a deal, you both could have refused to confess, and gotten 2
Game theoretic examples like these show that sometimes acting in
rational self interest (defined solely in terms of ones own individual
goals), without combining effort with other people and forming
agreements, can lead to less than optimal conditions for yourself.
Think of what kinds of actual situations you might experience which
are like this.
Hobbes's Contract Theory
- Thomas Hobbes was an English philosopher who lived
- His relevant work for our discussion is Leviathan,
- In the state of Nature, there would be
no place for industry, because the fruit thereof is
uncertain; and consequently no culture of the earth; no
navigation, nor use of the commodities that may be imported by
Sea; no commodious Building; no Instruments of moving and
removing such things as require much force; no Knowledge of
the face of the Earth; no account of Time; no Arts; no
Letters; and which is worst of all, continuall feare, and
danger of violent death; And the life of man, solitary, poore,
nasty, brutish, and short [Leviathan].
- Our best solution is to give up some freedoms in exchange
for other people giving up those freedoms. The freedoms we
would then be inclined to give up are those that would harm us
if exercised against us.
- Hobbes thought that we needed a strong government to enforce
this implicit social contract.
- But Hobbesian contract theory is one source of the ideas
that underlie classical liberalism: that our social
arrangement should be the one that ensures each of us the
maximum freedom consistent with all of us having those
freedoms, and with minimal harm to each other.
Rawls's Contract Theory
- John Rawls was an American philosopher, 1921-2002.
- Rawls is most noteworthy in this context for having
introduced a radical new way of thinking about contract
theory, and a new normative use of it.
- Rawls introduces the concept of the "veil of ignorance":
each person is to decide upon the society that they want if
they do not know what job or sex or race or savings and etc.
they would have when they return to that world.
- Rawls sees this as an application of the idea that justice
is fairness. If justice is fairness, presumably we should treat
everyone fairly. But how do we describe such a situation? We
imagine what would be our social decisions from behind the veil
- Behind the veil, Rawls argues we would decide for:
- The minimax principle: shape the economy to
maximize the minimum.
- (Classical) liberal freedoms: allow the maximum
freedoms for all that are consistent with all of us
having those freedoms (e.g., generally, if there is
some general freedom you do not want exercised against
you, then don't give that freedom to anyone).