Power, Contract, and the Economic Model

Abstract

This article focuses on the often neglected subject of power in contract and economics.' Power is here defined as the ability to impose one's will on others irrespective of their wishes.2 Two kinds of power may usefully be distinguished in analyzing contract and the economic model: unilateral and bilateral. Unilateral power is the type a person can exercise to subject another to some particular effect without the other's consent. Members of any society have unilateral power arising from the existence of property and other rights (such as liberty) that confer on the holders the ability to impose sanctions on others interfering with those rights. In addition, participants in contracts can acquire unilateral power in a number of ways. Three of the most fundamental are by exercising bilateral power, thus giving rise to some kind of obligation, for example, a promise to repay money being lent; by external conferring of such power, for example, by giving an employee the power to recover damages for racially discriminatory practices; and by creating conditions of dependence, for example, the position of a car owner when his car is in pieces halfway through a repair job. Bilateral power arises when the possibility of exchange exists by which two parties can release each other from some of the restraints imposed by their respective unilateral powers. For example, a potential employee may consider giving up some of his liberty in exchange for a potential employer's giving up some of his property rights in money. Bilateral power