The rationale behind the legal prohibition of blackmail and its effects have worried lawyers, economists and philosophers. The paper tries to offer a new perspective on the issue by introducing a simple game-theoretic model of the blackmail interaction under three alternative legal regimes: blackmail as a legally enforceable contract, blackmail as a voidable contract, and criminal blackmail. We show that the first two are substantially equivalent, and are unable to prevent a successful blackmail equilibrium outcome. Making blackmail a crime can instead alter this result for some parameters of the model.
We also explore the justification for criminalizing blackmail and find it, in line with previous Law and Economics literature on blackmail (Ginsburg and Shechtman (1993), Coase (1988)), in the correction (albeit incomplete) of misaligned incentives to acquire information and the revelation and no revelation outcomes involved in the blackmail transaction. This justification could be undermined by the advantages of what seems to be a superior legal regime in terms of efficiency: no legal regulation of blackmail. This hands-off system can also destabilize, in a one-shot interaction, the successful blackmail outcome. In plausible dynamic interactions, however, it fails to do so and, in fact, its effects actually resemble those of blackmail as an enforceable contract. This result might explain why most legal systems stick to the criminalization of blackmail.
As a form of illegal behavior, blackmail seems to be a rather marginal and picturesque phenomenon. At least it does not appear too frequently before the Courts, if one is to judge by the, admittedly narrow, historical experience of Spanish Civil and Criminal Courts. In spite of its rarity, and somewhat unexpectedly, blackmail has been the object of considerable and remarkable theoretical attention in the last two decades. Philosophers1, lawyers2 and economists or Law and Economic scholars,3 have striven to explain what is wrong with blackmail, what justifies its unlawfulness and what should the attitude of the legal system be in the presence of its various manifestations and forms.
This paper intends to offer an analysis of the effects of a hypothetical legalization of blackmail upon the actions of the individuals involved, as well as those resulting from a pure regime of civil unenforceability and of a system of criminal sanctions, using the tools of game theory,4 in a simple model with perfect information. In the light of the predictions of this simple model, different aspects relative to the legal regulation of blackmail are considered.
The paper is organized as follows: in Section 2, a positive model of blackmail is presented, in which we examine the behavior of the parties under three alternative legal regimes: legal blackmail (the agreement between the blackmailer and his victim is a legally binding contract), mere non-enforceable blackmail, and criminal blackmail.
Section 3 analyzes the implications of the model in the event that the revelation of information turns out to be socially desirable, as well as when the revelation turns out to be detrimental in terms of social welfare.
In Section 4, we explain how the prior two sections contribute towards supporting the justification for criminalizing blackmail prevalent in the Law and Economics literature, and principally associated with Ginsburg and Shechtman (1993) and Coase (1988).
Section 5 discusses some qualifications to the findings of the previous sections, including a fourth alternative for a legal system, namely no legal consequences arising from blackmail, and Section 6 concludes.
In this paper, we have tried to shed new light on a long-vexing problem, namely the legal treatment of blackmail and its justification. With the use of a simple game-theoretic model of the blackmail interaction, we have showed the likely effects of three different (in legal terms, at least) regimes: legal blackmail, mere non-enforceable blackmail and criminal blackmail.
From the point of view of the induced equilibrium strategies, the first two are substantially equivalent. Criminalizing blackmail, on the contrary, destabilizes, for certain parameter values, some equilibria of the other two games leading to successful blackmail. A regime of no legal regulation of blackmail, in turn, can also destabilize (completely, in this case, and with no enforcement costs) the successful blackmail equilibrium. In plausible dynamic interactions, however, this latter regime fails to do so and resembles the blackmail as an enforceable contract alternative.
Consequently, the criminalization of blackmail serves to correct (though not completely) the misalignment of incentives to acquire information and the revelation and no revelation outcomes involved in the blackmail transaction. This result gives additional support to the traditional Law and Economics account of blackmail largely associated with Ginsburg and Schechtman and Coase.
Moreover, if one assumes the social desirability of revealing or not revealing a certain piece of information, the efficiency merits of criminalizing blackmail become apparent. When disclosure is socially valuable, criminal blackmail is undeniably more efficient than the alternative legal regimes. When disclosure would be, on the whole, socially less preferrable than secrecy, criminal blackmail is again superior unless p (the outside price of the information) exceeds c (the cost of acquiring the information), in which case the efficiency comparison among the regimes is inconclusive. If, however, the criminalization of blackmail is coupled, in this circumstances, with legal policies that reduce p or increase c so that p<c, which seem natural under the assumed social undesirability of information disclosure, the undeniable advantage of the criminal regime is restored.
The latter result serves also to underline the (usually overlooked) relationship between legal rules governing blackmail and legal rules that restrict or encourage disclosure of information concerning individual’s past or present behavior. This is not a way out of blackmail’s puzzle, but simply the effect of the common efficiency purpose of both sets of rules.
