Undead and Unenforceable Contracts

I’ve recently learned of two different products aimed at customers expecting a zombie invasion.  First, there’s the $113K Zombie Fortification Cabin from Tiger Log Cabins:

The ZFC-1 is a log cabin kit designed with the walking dead in mind. The structure consists of three connected buildings. It comes stocked with reinforced slit windows, walls and doors; a barbed-wire surround; an escape hatch on top; and a living room with Xbox, TV and sound system. It comes with an arsenal storage unit to secure your anti-zombie weaponry. There’s also a toilet system, garage, kitchen area with microwave and an upper deck with a full view all around so you can keep an eye out for the oncoming horde. A garden section means you won’t have to take over an abandoned prison to start a small produce farm.

Second, there’s Zombie Juice, a tonic designed to prevent you from turning into a zombie after exposure:

When I set about creating my Zombie Juice, I was going for an end result that was good for the whole body. A tonic. Something that would boost the immune system, strengthen the organs, regulate digestion, cleanse toxins, and provide lots of vitamins and minerals to the body. I wanted it to have all the ‘anti’ properties… antibiotic, antibacterial, anti-fungal, antiviral, anti-radiation, antioxidant, anti-inflammatory… I wanted it to be strong enough to knock out any stray bit of illness or disease that might find its way into our system, but gentle enough to be able to take daily to prevent any illness or disease from finding its way into our system in the first place.

What do these products have in common?  Both make claims about efficacy that cannot be tested until it’s too late to ask for a refund.  Interestingly, the log cabin company does offer a 10-year anti-zombie guarantee (“Please note — we require medical evidence of the presence of a real zombie should you wish to claim under the 10 year anti zombie guarantee.”)  But how could this guarantee ever be enforced?  Zombie Juice offers no similar guarantee – in fact, the recipe is simply offered for free online – but if there were such a guarantee, it would be similarly pointless.

Unenforceable contracts arise in Economics of the Undead in Eleanor Brown and Robert Prag’s chapter on “Zombification Insurance.”  Zombification insurance claims can only be expected to pay out during contained zombie outbreaks, inasmuch as a full-blown apocalypse makes payouts both unlikely and superfluous.  As Brown and Prag put it, “None of those people running screaming through the streets in World War Z are looking for their claims adjusters. … In a full-blown zombie apocalypse, then, anybody who wants to run screaming through the streets in search of her claims adjuster should be heading for the courthouse where the insurers are filing their bankruptcy papers.”

Unenforceable contracts are bad for a couple of reasons.  The obvious reason is that they allow firms to make promises they never intend to keep and offer products they never intend to work.  The cabin may be shoddily constructed; the anti-zombie tonic may be ineffective; the zombie insurance company might have no intention of paying out any claims.  Some people may be suckered into buying these low-quality or fraudulent products.

The other problem with unenforceable contracts is less obvious but just as bad:  they may deter the creation of products and services that do work.  Let’s say there’s a company with an anti-zombie product that is genuinely effective, but it costs more to make than the bogus kind.  They’d like to send a message to potential buyers that their stuff really works, and one way to do so is to offer a guarantee:  “I’ll compensate you if my product fails.”  This offer is cheap for the makers of the genuine article (because they don’t expect to pay out) but expensive for the snake-oil salesmen (because they will have to pay out).  Or at least, that would be true if the guarantee were enforceable.  Without enforceability, however, both producers can make the same guarantee with little fear of consequences.  As a result, consumers cannot distinguish between the effective and ineffective products.  And then the producer of the costly-but-effective product will get priced out of the market.

As Brown and Prag observe, matters change substantially if zombie outbreaks are expected to be sporadic and contained.  In that context, contractual guarantees can be enforced — and even if they can’t, reputational effects (think Yelp) can induce better behavior on the part of producers.  Perhaps the creators of the ZFC-1 cabin are assuming such a contained-outbreak world.  It’s the end of the world that encourages end-game behaviors.