Satisfaction Guaranteed: When Moral Hazard Meets Moral Preferences

James Andreoni

American Economic Journal: Microeconomics, 2018, vol. 10, issue 4, 159-89

Abstract: The fear of moral hazard—especially in the age of Internet commerce—can depress or prevent profitable trades. Experiments show, however, that many people prefer honesty to deceit and would not succumb to moral hazard. This paper asks a whether we can find a simple, voluntary institution that can empower moral traders, drive out amoral ones, reduce moral hazard, and restore profitable trade to markets. I find that selling goods with a "satisfaction guarantee," accompanied by potentially minor legal or reputational enforcement, allows moral preferences to defeat moral hazard.

JEL-codes: C91 D63 D82 Z13 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/mic.20170119
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Citations: View citations in EconPapers (8)

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Working Paper: Satisfaction Guaranteed: When Moral Hazard meets Moral Preferences (2017)
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