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Satisfaction Guaranteed: When Moral Hazard meets Moral Preferences

Listed author(s):
  • James Andreoni

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 23352.

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Date of creation: Apr 2017
Handle: RePEc:nbr:nberwo:23352
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