Satisfaction Guaranteed: When Moral Hazard meets Moral Preferences

No 23352, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: C92 D02 D4 K2 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-cta, nep-evo, nep-exp, nep-hpe, nep-hrm, nep-law and nep-soc
Note: IO LE PE
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Citations: View citations in EconPapers (4)

Published as 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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Journal Article: Satisfaction Guaranteed: When Moral Hazard Meets Moral Preferences (2018)
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