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Coercion, Contract and the Limits of the Market

Author

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  • Basu, Kaushik

    (Cornell U)

Abstract

It is a widely accepted principle of economics that if two or more adults voluntarily agree to a contract or an exchange that has no negative fall-out on others, then the government should not stop such a contract. This is often called the 'principle of free contract' (PFC). There is a body of writing in economics which upholds the PFC. Yet, this ubiquitous principle is ill-defined and full of ambiguities. For instance, since it refers to voluntary choice, its proper use presumes an understanding of what is 'voluntary' and, therefore, also, of what is coercive. What is ironic is that, while philosophers and legal scholars have debated and analyzed these concepts and the validity of the principle of free contract, there is very little discussion of these in economics, even though so much of economics is founded on this principle. This has caused a lot of policy confusion. The aim of this paper is to construct general rules for when we may violate the PFC. The argument is constructed within the Paretian framework. Hence, the violation of the PFC is not justified by appeal to deontological ethics or non-welfarist criteria. This is not an easy task since the principle of free contract is often viewed as a rule that is a derivative of the Pareto principle.

Suggested Citation

  • Basu, Kaushik, 2006. "Coercion, Contract and the Limits of the Market," Working Papers 06-01, Cornell University, Center for Analytic Economics.
    • Handle: RePEc:ecl:corcae:06-01
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    File URL: https://cae.economics.cornell.edu/06-01.pdf
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    Cited by:

    1. Basu, Kaushik & Pattanaik, Prasanta K., 2014. "Nash equilibria of games when players'preferences are quasi-transitive," Policy Research Working Paper Series 7037, The World Bank.
    2. Hänke, Hendrik & Barkmann, Jan & Blum, Lloyd & Franke, Yvonne & Martin, Dominic A. & Niens, Jasnna & Osen, Kristina & Uruena, Viviana & Witherspoon, S. Annette & Wurz, Annemarie, 2018. "Socio-economic, land use and value chain perspectives on vanilla farming in the SAVA Region (north-eastern Madagascar): The Diversity Turn Baseline Study (DTBS)," DARE Discussion Papers 1806, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
    3. Barrett, Christopher B. & Bachke, Maren E. & Bellemare, Marc F. & Michelson, Hope C. & Narayanan, Sudha & Walker, Thomas F., 2010. "Smallholder Participation in Agricultural Value Chains: Comparative Evidence from Three Continents," MPRA Paper 27829, University Library of Munich, Germany.
    4. Elias, Julio & Lacetera, Nicola & Macis, Mario, 2016. "Efficiency-Morality Trade-Offs in Repugnant Transactions: A Choice Experiment," IZA Discussion Papers 10187, Institute of Labor Economics (IZA).
    5. Arvanitidis Paschalis A. & Kyriazis Nicholas C., 2013. "Democracy and Public Choice in Classical Athens," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 19(2), pages 213-248, August.
    6. Raul Caruso, 2008. "Reciprocity in the shadow of threat," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 55(1), pages 91-111, April.
    7. Kaushik Basu, 2007. "Identity and altruism: The Moral basis of prosperity and oppression," Discussion Papers 08-08, Indian Statistical Institute, Delhi.
    8. Sandro Ambuehl & Muriel Niederle & Alvin E. Roth, 2015. "More Money, More Problems? Can High Pay Be Coercive and Repugnant?," American Economic Review, American Economic Association, vol. 105(5), pages 357-360, May.
    9. Dan Munter & Lars Lindblom, 2017. "Beyond Coercion: Moral Assessment in the Labour Market," Journal of Business Ethics, Springer, vol. 142(1), pages 59-70, April.
    10. Julio J. Elías & Nicola Lacetera & Mario Macis, 2019. "Paying for Kidneys? A Randomized Survey and Choice Experiment," American Economic Review, American Economic Association, vol. 109(8), pages 2855-2888, August.
    11. Raul Caruso, 2011. "Relational Goods at Work! Crime and Sport Participation in Italy: Evidence from Panel Data Regional Analysis over the Period 1997–2003," Chapters, in: Wladimir Andreff (ed.), Contemporary Issues in Sports Economics, chapter 3, Edward Elgar Publishing.
    12. Kim, Iljoong & Kim, Jaehong, 2015. "Frivolous Suits In The Infinitely-Repeated Litigation Game With Uncertainty," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 56(1), pages 21-33, June.
    13. Barrett, Christopher B. & Bachke, Maren E. & Bellemare, Marc F. & Michelson, Hope C. & Narayanan, Sudha & Walker, Thomas F., 2012. "Smallholder Participation in Contract Farming: Comparative Evidence from Five Countries," World Development, Elsevier, vol. 40(4), pages 715-730.
    14. Raul Caruso, 2010. "Butter, Guns And Ice-Cream Theory And Evidence From Sub-Saharan Africa," Defence and Peace Economics, Taylor & Francis Journals, vol. 21(3), pages 269-283.
    15. repec:hit:hitjcm:v:56:y:2015:i:1:p:21-33 is not listed on IDEAS
    16. Michael A. Clemens, 2018. "Testing for Repugnance in Economic Transactions: Evidence from Guest Work in the Gulf," The Journal of Legal Studies, University of Chicago Press, vol. 47(S1), pages 5-44.

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