Note: We have received extremely useful comments and suggestions from two anonymous referees. We acknowledge excellent research assistance from Jofrey Amanyise, Ben Dandi, Øystein V. Dvergsdal, Lars Engebredtsen, Maria Frengstad, Ole-Aleksander Greve, Cornel Jahari, Lucas Katera, Hilda Luusah, Khadijah Omer, Dennis Rweyemamu, Stein Svalestad, Sander van den Heuvel, and Jon Vassengen. We are also grateful to REPOA (Dar-Es-Salaam) and the University of Bergen for facilitating the experiments. Helpful comments were received from Amadou Boly on an earlier draft. Financial support from the Research Council of Norway (grant 172225/V10) and the research centre Equality, Social Organization, and Performance (ESOP) at the Department of Economics, University of Oslo is gratefully acknowledged. The project was administered by The Choice Lab, Norwegian School of Economics.
Do Non-Enforceable Contracts Matter? Evidence from an International Lab Experiment
Article first published online: 4 FEB 2014
© 2014 UNU-WIDER. Review of Income and Wealth published by John Wiley & Sons Ltd on behalf of International Association for Research in Income and Wealth.
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Review of Income and Wealth
Special Issue: Poverty, Development, and Behavioral Economics (Comprises Findings of UNU-WIDER Project New Approaches to Measuring Poverty and Vulnerability)
Volume 60, Issue 1, pages 100–113, March 2014
How to Cite
Cappelen, A. W., Hagen, R. J., Sørensen, E. Ø. and Tungodden, B. (2014), Do Non-Enforceable Contracts Matter? Evidence from an International Lab Experiment. Review of Income and Wealth, 60: 100–113. doi: 10.1111/roiw.12099
- Issue published online: 4 FEB 2014
- Article first published online: 4 FEB 2014
- Research Council of Norway. Grant Number: 172225/V10
- Equality, Social Organization, and Performance (ESOP) at the Department of Economics, University of Oslo
- moral motivation;
- trust game
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. This seems partly to be due to negative reciprocity, but may also reflect that there are individuals who have a preference for not accepting something referred to as a “loan.”