Trust, Reciprocity, and Contract Enforcement: Experiments on Satisfaction Guaranteed

Abstract

Theorists and policy analysts have convincingly argued that greater trust makes a more efficient society by reducing the need for costly contracts. At the same time, some experiments have suggested 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 this mechanism does indeed build trust and improve efficiency, but only if it is externally enforced. Paradoxically, only one side of the transaction needs the assurance of external enforcement. Offering a satisfaction guarantee always increases trustworthiness of sellers, even when honoring it is fully voluntary, but only elicits the trust of buyers when it is legally enforced.

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