Social Norms and Strategic Default

Details

Serval ID
serval:BIB_725206F42CE6
Type
Article: article from journal or magazin.
Collection
Publications
Institution
Title
Social Norms and Strategic Default
Journal
Journal of Money, Credit and Banking
Author(s)
Brown M., Schmitz J., Zehnder C.
ISSN
0022-2879 (print)
1538-4616 (electronic)
Publication state
In Press
Peer-reviewed
Oui
Language
english
Abstract
We study the behavioral mechanisms which contribute to increased strategic defaults during an economic crisis. In our laboratory experiment, subjects can default on an outstanding loan, but moral constraints and social norm enforcement may provide incentives to repay. We exogenously vary the state of the economy: In the weak economy more borrowers are forced to default than in the strong. We identify two main effects of weak economic conditions: First, moral constraints are softened: Solvent debtors default more often. Second, under informational uncertainty about the reason for default, social norm enforcement is undermined: Peers are more reluctant to sanction defaulters.
Keywords
Strategic Default, Moral Constraints, Social Norms
Create date
19/10/2017 13:41
Last modification date
10/02/2024 7:14
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