Journal article
Information and the persistence of private-order contract enforcement institutions: An experimental analysis
T Wilkening
European Economic Review | ELSEVIER | Published : 2016
Abstract
We study an experimental market in which some sellers are prone to moral hazard, and in which a private-order contract enforcement institution exists that can mediate trade and prevent sellers from reneging on their contractual obligations. Using the institution to resolve the moral-hazard problem is costly. We demonstrate that in this market, the utilization of the private-order contract enforcement institution may make public and private market signals uninformative and inhibit learning. We study whether this potential information externality can limit adaptation away from the private-order institution when it is efficient to do so. Consistent with theory, we find inefficient persistence w..
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Awarded by Australian Research Council
Funding Acknowledgements
I am grateful to Abhijit Banerjee, Ernst Fehr, and Sergei Izmalkov, for their thoughtful and detailed comments on earlier drafts. I am also indebted to Georg Hartmann and Holger Herz for their help with translation and managing the laboratory in Zurich. I also thank Daron Acemoglu, Jim Berry, David Cooper, Nisvan Erkal, Greg Fischer, Simon Loertscher, Nikos Nikiforakis, Chris Smith, Rob Townsend, Patrick Warren, and four anonymous referees for valuable comments on the paper. All programs were written in Z-Tree (www.iew.unizh.ch/ztree/). I gratefully acknowledge the financial support of the George and Obie Schultz Fund Research Grant, The University of Melbourne Faculty of Business and Economics, and the ARC Discovery Early Career Research Award DE140101014.