Do non-Enforceable Contracts Matter? Evidence from an International Experiment, 2008

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? "Do non-Enforceable Contracts Matter? Evidence from an International Experiment, 2008" studies repayment decisions in the presence of non-enforceable loan contracts by using a version of the trust game with participants from Norway and Tanzania. The main findings are 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. The results 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". "Do non-Enforceable Contracts Matter? Evidence from an International Experiment, 2008" is generated in the project "Responsibility, Individual Choice and Redistributive Policy".