Contract theory

Contract theory refers to a model of reasoning in political theory and in ethics more generally in terms of which authors aim to demonstrate the normative validity of a rule, principle or institution thereby making it plausible to a certain audience. In political theory these principles and institutions are often the authority of government, law and other main social institutions. The contract model then provides a solution to the problem of ‘political obligation’, i.e. it gives an answer to the question ‘why should we obey government and the law?’ In ethics the contract metaphor is used to provide a justification for the system of norms as a whole. Core of the contract model is the idea that such a norm or institution binds a certain target group or audience addressed if it can be shown that under certain carefully specified conditions, individual members of this audience would agree with the norm or institution. A primary characteristic of contract theory, therefore, is the individual perspective from which the justification proceeds. As Sugden (2018: 37-48) has recently reminded us, the contract model properly so-called consists of ‘a recommendation to a set of individuals, showing those individuals how they can coordinate their behaviour to achieve mutual benefit’. A well-formed contract argument therefore proceeds from the standpoint of ‘a mediator, helping the parties to a negotiation to find an agreement that they can recognize as mutually beneficial.’ In contrast to a counsellor advising separate individual parties, ‘the contractarian mediator is advising all the parties together’. At the same time, since the recommendation is addressed to each member of the community individually, its contents must be coached in terms which all parties can acknowledge. Following from these basic characteristics of contract theory is the idea of compensation, which links contract theory to the perspectives of rational choice and Cost Benefit Analysis (CBA). If ‘a specific policy proposal would impose harm on particular individuals, the addition of compensation payments may make the overall proposal mutually beneficial’. Another central corollary is that contract theory is logically incompatible with all forms of paternalism. Seen from a contractarian perspective ‘a paternalistic recommendation lacks a valid addressee’. In view of the modelling involved, the contract argument typically runs in terms of hypothetical, as opposed to actual agreement. Since the work of Scanlon (1998) the standard distinction of contract theory is into contractarianism, building on the Hobbesian perspective of mutual advantage, and contractualism, which goes back to Rousseau’s notion of free and equal citizens and Kant’s idea of rational autonomous agency