Working Paper: NBER ID: w23352
Authors: James Andreoni
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.
Keywords: satisfaction guarantee; trust; moral hazard; moral preferences; economic efficiency
JEL Codes: C92; D02; D4; K2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Satisfaction Guarantees (L15) | Trust (G21) |
| Trust (G21) | Economic Efficiency (D61) |
| Satisfaction Guarantees (L15) | Economic Efficiency (D61) |
| Legal Backing (Y20) | Trust (G21) |
| Social Preferences (D71) | Effectiveness of Satisfaction Guarantees (L15) |
| Satisfaction Guarantees (Non-Binding) (D86) | Trust (G21) |