Satisfaction Guaranteed: When Moral Hazard meets Moral Preferences
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.
Document Object Identifier (DOI): 10.3386/w23352
Published: 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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