Do non-enforceable contracts matter? Evidence from an international lab experiment
AbstractMany 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.
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Bibliographic InfoPaper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 2/2012.
Length: 20 pages
Date of creation: 12 Feb 2012
Date of revision: 03 Apr 2012
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Non-enforceable contracts; Lab experiment.;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-10 (All new papers)
- NEP-CBE-2012-04-10 (Cognitive & Behavioural Economics)
- NEP-EXP-2012-04-10 (Experimental Economics)
- NEP-MFD-2012-04-10 (Microfinance)
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