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Do non-enforceable contracts matter? Evidence from an international lab experiment

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.

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Paper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 2/2012.

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Length: 20 pages
Date of creation: 12 Feb 2012
Date of revision: 03 Apr 2012
Handle: RePEc:hhs:nhheco:2012_002
Contact details of provider: Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 959 277
Fax: 5595 9100
Web page:

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  1. Gary Charness, 2004. "Attribution and Reciprocity in an Experimental Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 665-688, July.
  2. Jeremy Bulow & Kenneth Rogoff, 1998. "Sovereign Debt: Is to Forgive to Forget," Levine's Working Paper Archive 209, David K. Levine.
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  12. Samer Al-Samarrai & Paul Bennell, 2007. "Where has all the education gone in sub-Saharan Africa? employment and other outcomes among secondary school and university leavers," Journal of Development Studies, Taylor & Francis Journals, vol. 43(7), pages 1270-1300.
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  14. Alexander W. Cappelen & Astri D. Hole & Erik Ø. Sørensen & Bertil Tungodden, 2005. "The Pluralism of Fairness Ideals: An Experimental Approach," CESifo Working Paper Series 1611, CESifo Group Munich.
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