Investments to Make Threats Credible, Rent-Seeking, and Duress
9 Pages Posted: 25 Oct 2015 Last revised: 24 Nov 2016
Date Written: October 23, 2015
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.
Keywords: Duress, rent-seeking, wealth-transfer, credible threat
JEL Classification: K00, K12
Suggested Citation: Suggested Citation