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Let us start with the following joke:
Two business partners asked their lawyer to hold $20,000, making him promise to get both of their signatures before disbursing any of it. As soon as one partner left town, the other pressed the lawyer for $15,000, citing an emergency. The lawyer reluctantly gave it to him, and he disappeared. On his return, the other partner was irate, so the lawyer explained that he had donated the $15,000 out of his own pocket.
“Then give me the $20,000 you’re holding,” said the partner.
“All right,” said the lawyer. “Give me the two signatures.”
__________
These two business partners and their lawyer should have signed a contract. If the lawyer disbursed any of the partners’ money without having both of their signatures, he would face legal action for breach of contract. However, this contract would still not be immune to collusion: one of the two partners could split the money with the lawyer and disappear, and the other partner would never have the two signatures required by contract to have his money back. How would you design a better contract? By “better contract”, I mean:
- a contract that would NOT give any of the parties involved an incentive to break it.
- a contract that would be robust (and, ideally, immune) to collusion.
I make no claims that such a “perfect contract” even exists, but maybe one could devise a contract that would be better than the aforementioned one. Purely for recreational purposes, I propose a challenge: try to design the best contract you can think of!
If you have any ideas, please feel free to share them.
