Investments to Make Threats Credible, Rent-Seeking, and Duress

Murat C. Mungan and Mark Seidenfeld

Supreme Court Economic Review, 2015, vol. 23, issue 1, 341 - 351

Abstract: Existing literature on the contract law doctrine of duress identifies a number of tests to determine conditions under which a contract can be voided. No article provides a specific and formal economic analysis on the link between rent- seeking and the conditions under which allowing a defense of duress is wealth enhancing. This article shows that commitments made as a result of ex ante investments by threatening parties made solely for the purpose of transferring, rather than creating wealth, ought to be voidable. We discuss cases in which a test based on rent-seeking enhances efficiency where previously proposed tests do not.

Date: 2015
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