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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title The complementarity between trust and contract enforcement
Organization Unit
Authors
  • Björn Bartling
  • Ernst Fehr
  • David Huffman
  • Nick Netzer
Language
  • English
Institution University of Zurich
Series Name Working paper series / Department of Economics
Number 377
ISSN 1664-705X
Number of Pages 59
Date 2022
Abstract Text We show experimentally and theoretically that trust and contract enforcement can be complements, and identify the key mechanisms that drive this complementarity. In our experiments, the effect of improvements in contract enforcement is trust-dependent, and the effect of increases in trust is shaped by the strength of contract enforcement. We identify three key mechanisms underlying this complementarity: (1) heterogeneity in trustworthiness; (2) strength of contract enforcement affecting the ability to elicit reciprocal behavior from trustworthy types, and screen out untrustworthy types; (3) trust beliefs determining willingness to try such strategies.
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Keywords Trust, contract enforcement, complementarity, equilibrium selection, causal effect, screening, belief distortions, institutions
Additional Information Revised version; Former title: The complementary nature of trust and contract enforcement