Satisfaction Guaranteed: When Moral Hazard Meets Moral Preferences

34 Pages Posted: 1 May 2017 Last revised: 21 Oct 2024

See all articles by James Andreoni

James Andreoni

University of California, San Diego (UCSD)

Date Written: April 2017

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.

Suggested Citation

Andreoni, James, Satisfaction Guaranteed: When Moral Hazard Meets Moral Preferences (April 2017). NBER Working Paper No. w23352, Available at SSRN: https://ssrn.com/abstract=2961077

James Andreoni (Contact Author)

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

HOME PAGE: http://econ.ucsd.edu/~jandreon/

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