Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Alexander W. Cappelen
Do non-enforceable contracts matter? Evidence from an international lab experiment.
(), Rune Jansen Hagen
(), Erik Ø. Sørensen
() and Bertil Tungodden
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, which partly may
reflect negative reciprocity, but also seems to reflect a fundame tal
aversion against uncertainty.
Keywords: Non-enforceable contracts; Lab experiment.; (follow links to similar papers)
JEL-Codes: C91; D63; D80; F34; (follow links to similar papers)
20 pages, February 12, 2012, Revised April 3, 2012
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