Do Non-Enforceable Contracts Matter? Evidence from an International Lab Experiment

Alexander Cappelen, Rune Hagen, Erik Sørensen and Bertil Tungodden

Review of Income and Wealth, 2014, vol. 60, issue 1, 100-113

Abstract: Many verifiable contracts are impossible or difficult to enforce. This applies to contracts among family and friends, contracts regulating market transactions, and sovereign debt contracts. Do such non-enforceable contracts matter? We use a version of the trust game with participants from Norway and Tanzania to study repayment decisions in the presence of non-enforceable loan contracts. Our main finding is that the specific content of the contract has no effect on loan repayment. Rather, the borrowers seem to be motivated by other moral motives, which contributes to explaining why they partly fulfill non-enforceable contracts. We also show that some borrowers violate the axiom of first-order stochastic dominance when rejecting loan offers. This seems partly to be due to negative reciprocity, but may also reflect that there are individuals who have a preference for not accepting something referred to as a "loan."

Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1111/roiw.12099 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Do non-enforceable contracts matter? Evidence from an international lab experiment (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:revinw:v:60:y:2014:i:1:p:100-113

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0034-6586

Access Statistics for this article

Review of Income and Wealth is currently edited by Conchita D'Ambrosio and Robert J. Hill

More articles in Review of Income and Wealth from International Association for Research in Income and Wealth Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().