Russell Hardin (1999, pp. 88-89) gives three reasons why a constitution is NOT like a contract. First, according to Hardin, a constitution is designed to create a government for a large group of people; a contract, by contrast, is designed to solve a prisoner’s dilemma between two parties. Second, a constitution does not require an explicit agreement among the people to be effective once it is adopted, while an essential element of contracts is mutual agreement between the parties to the contract. Third and last, constitutions are self-enforcing; contracts are enforced by courts. Alas, Hardin is wrong. Let’s examine each one of these arguments in reverse order:
* Constitutions are self-enforcing; contracts are enforced by external sanctions (the courts). What does it mean to say that constitutions are “self-enforcing”? The U.S. Constitution, for example, allocates to the political branches the power to enforce various provisions of the constitution, or as Hamilton wrote in The Federalist, the Congress has the power of the purse, while the President has power of the sword. Frankly, whether these enforcement powers are internal or external is just a play on words. In addition, many contracts are just as self-enforcing as constitutions are, especially long-term agreements or so-called “relational contracts” in which the parties care about their reputations and have more to lose by breaking their promises than keeping them.
* Constitutions are designed for large groups of people; contracts are designed to solve a prisoner’s dilemma between two parties. No, this claim is not right, for both contracts and constitutions are designed to solve prisoner’s dilemmas. In the case of a constitution, the prisoner’s dilemma involves a larger group of people, to be sure, but the underlying strategic problem in creating a government (via a constitution) is whether to cooperate (obey the laws of the new government) or defect (every man or clan for himself). In a previous paper (Guerra-Pujol, 2008), for example, we used the “stag hunt” model to describe the strategic nature of the process of constitutional ratification. Without getting into all the technical details (this is a blog post, after all), a stag hunt is a special kind of group prisoner’s dilemma (see image below): without a constitution, it is in most factions’ individual interest to defect and go it alone; with a constitution, it is in most factions’ interest to play by the rules (or game the rules) and cooperate.
Is our disagreement with Hardin just another trivial academic squabble? I, for one, actually agree with Hardin’s larger point about the strategic nature of constitutions. My main point here is that commercial transactions and most contracts also share many of the same strategic elements that constitutions do. But again, why does any of this matter? If constitutions are often like contracts (or vice versa, if contracts are often like constitutions), this observation should inform the role of the courts in enforcing these two types of agreements. In a word, judges should be humble …