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Brooks Wilson's Economics Blog: Christopher Dodd as Darth Vader

Sunday, April 19, 2009

Christopher Dodd as Darth Vader

Holdup occurs when one party to a contract alters it to his or her advantage after the other party has taken an irreversible action called for by the contract.  Darth Vader's treatment of Lando Calrissian illustrates holdup.  Vader wants to lure Luke Skywalker into a trap using Han Solo as bait.  He must first capture Solo.  Vader makes a contract with Calrissian in which he will free Solo's and Calrissian's friends, Princess Leia and Chewbacca, once Solo is captured.  The scene portraying the holdup is brief.
Imperial Officer: Skywalker has just landed, my Lord.

Vader: Good.  See to it that he finds his way here.  Calrissian, take the princess and the Wookie to my ship.

Lando: You said they'd be left in the city under my supervision.

Vader: I am altering the deal.  Pray I don't alter it any further. 
The fear of holdup causes economic agents to forego mutually beneficial contracts.  The problem is overcome through contracts enforced by an independent third party, usually the government.
A short time ago, in the nation's capital not too far away we witnessed a similar episode of holdup--the BONUS WARS.  Christopher Dodd (Vader), wants Jake DeSantis' (Skywalker) bonus.  DeSantis has worked for AIG for $1 over the past year to remake the company and has never participated in credit default swaps or other activities that caused the company's demise.  Edward Liddy (Lando Calrissian) is the government picked CEO of AIG.  The other executives who were to receive bonuses collectively play the roles of Princess Leia and Chewbacca.  The scene portraying the holdup is brief.
Sergeant-at-Arms: DeSantis has just written the New York Times, Senator.

Dodd: Good.  See to it that he finds his way here.  Liddy, take the workers' bonuses.

Liddy: You said they'd be left to the workers under my supervision according to contract.

Dodd: I am altering the deal.  Pray I don't alter it any further.
CEO's of financial institutions and their employees will view the government with less trust and avoid contracts that may be mutually beneficial increasing the cost of the bailout and the length of time necessary to resolve the financial crisis. 

The dialogue from Star Wars and the idea to apply it to economic hold up was taken from the back cover of the Journal of Political Economy, Vol. 114, No. 2, April 2006.  I love the back cover of the JPE!

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