A thought occurred to me on Tuesday: maybe elasticity of demand and duress have a close relationship. I searched the internet for papers on this topic, but found none that addressed my questions, so I decided to write something about it.
This is a FIRST DRAFT, so errors in reasoning, omissions and unaddressed contrary views would be appreciated in the form of comments. The footnotes could not be pasted into the blog editor, which is unfortunate, because they explained in depth many of the germane issues that would have interrupted the flow of the work. In their place, I have posted the works cited.
N.B. Prof. Kaplisky: please don't read this.
Introduction
Price-elasticity of demand and the availability of substitutes are key considerations in understanding common law and statutory responses to duress. Insulin is the oft cited example of a good that is demanded inelastically. The price is of insulin does not significantly alter the diabetic's decision whether to purchase insulin; this bears out empirically. For comparison, orange tennis balls are often described as highly elastic. That is, if their price increases significantly and green tennis balls are readily available, demand will drop dramatically for orange tennis balls. In these examples we find the heart of duress: inelastic demand and the unavailability of substitutes. For the purposes of analysis, I will consider both a situation in which contract is induced by duress and several situations in which crime is induced by duress.
Duress-induced Contract
Duress in contract formation is potentially voidable and criminal. Consider a 'mugger' and 'muggee' (for lack of a better word). In a typical mugging, the good being sold is the right of the muggee not to be stabbed or shot; they are contracting through sale for a right to live. First, the mugger supplies his good – (or 'bad') – relatively elastically, providing that there are other suitable targets in the area. The longer the time horizon in which he can mug to meet his needs, the more elastic his supply, providing, in part, that he avoids notoriety. Second, given that the muggee is not suicidal, the muggee will demand his life virtually inelastically, and there are no substitutes for life.
Why is such a contract unenforceable? From an economic perspective, it is not desirable to have people perform contracts which are not mutually beneficial. Importantly, in the situation described above, elasticity of demand is low and elasticity of supply is high. When this occurs, the burden falls mainly on the consumer who has brought no real consideration to the contract. That is, he already had his life; depriving him of it is not so much a 'good' as a 'bad'. Moreover, elasticity of demand is also determined by whether the desired good (namely, the avoidance of being stabbed) is a necessity or a luxury. Indeed, once dead, no utility can be derived from luxury goods: in this sense, life – like a diabetic's need for insulin – is the quintessence of inelastic demand.
How, then, is it that insulin is not normally purchased under duress, while a muggee's contractual right to life is? There are two components to this answer: monopoly and short-run effects. With insulin, there is more than one location from which it can be acquired, and one can plan purchases in advance. In contrast, the mugger is relying on his monopoly to reap extra profit. Indeed, price discrimination by monopolists is informed by each consumer group's elasticity of demand. When willingness to pay can be disguised, perfect price discrimination won't happen. However, it is hard to conceal the value of one's own life; in this sense, the mugger can price discriminate almost perfectly. In such a situation, there is very little or no consumer surplus, so the contract is not mutually beneficial.
If a thug or another mugger were to arrive mid-transaction, the dynamics would change. They could collude, or they could bargain with the muggee for the right to life (something that could be enforced in this scenario by each mugger or thug). Also, the thug is offering a substitute: he is a henchman who will thwart would-be muggers for a price. In effect, he is offering private security services, a real good. Furthermore, the muggers would have to bargain against each other, effectively saying to the muggee: “Give me some of your money!” This is because as more sellers enter the market and something closer to perfect competition is arrived at, when one mugger raises his price above the market rate, business will be lost.
Yet, it seems more likely that the muggers and thugs would collude, given transaction costs were not made too great by the presence of too many muggers and thugs. They could collude to keep the price high and not offer private security as a substitute, putting the muggee back in the same position that he faced with one mugger alone, namely, duress. This is the kind of behaviour envisioned by Adam Smith:
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
Duress-induced crime
One can also considered the defence of duress in a criminal context. In such a situation, a criminal (hereafter referred to as the 'rogue') forces a victim to commit a crime which the criminal is unable or unwilling to commit himself. This transaction is also characterized by inelastic demand. Like the above mugging scenario, the victim here demands his life (or that of a loved one) inelastically. This can be contrasted with the rogue's supply: he is offering the to not kill in exchange for performance – again, this is probably more of a 'bad' than a 'good'.
The Criminal Code, at s. 17, offers a defence of compulsion when a victim of duress is forced to commit a crime. Interestingly, there are a number of crimes for which the defence is not allowed. These are generally crimes in which the victim also demands his bodily integrity inelastically with no close substitutes: murder, sexual assault, unlawfully causing bodily harm, and others. The Supreme Court of Canada has held that a defence of duress requires proportionality between the threat and the criminal act. There are a few crimes that do not necessarily involve bodily harm for which the defence is not available: treason, piracy, and arson – perhaps these crimes are ones for which society feels the greatest aversion.
In R. v. Ruzic, the Supreme Court struck down part of s. 17 of the Criminal Code, finding that it would be contrary to the principles of fundamental justice, pursuant to s. 7 of the Charter. Lebel J. found that the code was too narrow in not allowing for indirect threats, such as the hostage taking of a loved one. As A. Gold suggests, the section must be recast in light of the SCC's decision in R. v. Ruzic to allow for threats with a close temporal connection rather than restricting duress to immediate threats. Indeed, the immediacy requirement has been relaxed across much of the common law world. In this way, there is still an issue of the availability of substitutes; that is, with more time between the threatened violation of bodily integrity, there are more opportunities for the victim to find substitutes for the rogue's offer of bodily integrity -- the victim can seek public or private security, having the police or a hitman deal with the rogue, rather than carrying out the rogue's plan himself.
Constraining the scenario to one in which the victim's own health is in question, the defence is still not available if there is a safe avenue of escape. In R. v. Hébert, at the Quebec court of appeal, the court ruled that “Une menace de mort à laquelle l'intimé pouvait facilement se soustraire et qu'il pouvait rendre inexécutable au moment de son témoignage ne lui permettait pas d'invoquer l'excuse de contrainte de l'article 17.” Although Hébert likely valued his life inelastically, he was not allowed the defence for threats received before trial. He should have sought police protection. Why? Police protection is a substitute for committing a crime. When close substitutes are available (in Hébert's case, public protection), the price elasticity of demand increases: our victim no longer needs to make the bad exchange with the rogue.
Conclusion
From these two foregoing scenarios – namely, crimes and contracts induced by duress – it is evident that inelasticity of demand and the unavailability of substitutes are key ingredients. In similar fashion, D. Friedman's examples of duress fall under the purview of this approach. Contrastingly, things that are demanded elastically, such as restaurant meals and foreign travel, appear to be things in which duress is less likely to found. It strains credulity to imagine duress being found in a situation in which a person were to elect to eat a restaurant at which the proprietor raised prices to unconscionable highs. Indeed, price-elasticity of demand and the availability of substitutes are key considerations in understanding common law and statutory responses to duress.
Works Cited:
D. Friedman, Law's order: what economics has to do with law and why it matters. (Princeton, N.J.: Princeton University Press, 2000).
A. Gold, The Practitioner's Criminal Code. (Markham: LexisNexis, 2008).
P. Hogg, Constitutional Law of Canada. (Scarborough: Carswell Legal Pubns., 2007).
P. Krugman, R. Wells, and A. Myatt, Microeconomics: Canadian Edition. (New York: Worth Publishers, 2006).
M. McInnes et al., Managing the law: the legal aspects of doing business. (Toronto: Prentice Hall, 2003).
A. Smith, An inquiry into the nature and causes of the wealth of nations. Retrieved from: <http://www.gutenberg.org/etext/3300>.
J. Stiglitz and C. Walsh, Principles of microeconomics. (New York: W.W. Norton, 2005).
C G. Veljanovski, Economic principles of law. (Cambridge: Cambridge University Press, 2007).
Cases Cited:
R. v. Ruzic, 2001 SCC 24, [2001] 1 S.C.R. 687.
R. v. Hébert, [1989] 1 S.C.R. 233, 49 C.C.C. (3d) 59.
R. v. Hébert , [1986] 3 Q.A.C. 251, 49 C.C.C. (3d) 59.
Statutes Cited:
Criminal Code, R.S.C. 1985, c. C-46.
The Constitution Act, 1982.
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