Satisfaction Guaranteed: When Moral Hazard Meets Moral Preferences
- (pp. 159-89)
AbstractThe fear of moral hazard—especially in the age of Internet commerce—can depress or prevent profitable trades. Experiments show, however, that many people prefer honesty to deceit and would not succumb to moral hazard. This paper asks a whether we can find a simple, voluntary institution that can empower moral traders, drive out amoral ones, reduce moral hazard, and restore profitable trade to markets. I find that selling goods with a "satisfaction guarantee," accompanied by potentially minor legal or reputational enforcement, allows moral preferences to defeat moral hazard.
Citation2018. "Satisfaction Guaranteed: When Moral Hazard Meets Moral Preferences." American Economic Journal: Microeconomics, 10 (4): 159-89. DOI: 10.1257/mic.20170119
- C91 Design of Experiments: Laboratory, Individual
- D63 Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- D82 Asymmetric and Private Information; Mechanism Design
- Z13 Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification