Satisfaction Guaranteed: When Moral Hazard meets Moral Preferences
James Andreoni ()
No 23352, NBER Working Papers from National Bureau of Economic Research, Inc
Theorists and policy analysts have convincingly argued that greater trust makes a more efficient society by eliminating costly contracts or expensive reputations. Concurrently, experiments suggest that reciprocity is a potent substitute for law when compliance with contracts is imperfectly enforced. This paper examines these issues within the context of a common trust-building contract device: satisfaction guaranteed. We find that satisfaction guaranteed indeed builds trust and improves efficiency. Interestingly, sellers offering a guarantee are more trustworthy than those who don't, even when honoring it is fully voluntary, but the guarantee only elicits the trust of buyers when it has legal backing.
JEL-codes: C92 D02 D4 K2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-evo, nep-exp, nep-hpe, nep-hrm, nep-law and nep-soc
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Published as Andreoni, James. 2018. "Satisfaction Guaranteed: When Moral Hazard Meets Moral Preferences." American Economic Journal: Microeconomics, 10 (4): 159-89. DOI: 10.1257/mic.20170119
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Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:23352
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