Title: Contract Enforcement in a Stateless Economy

Speaker: Sultan Mehmood, Assistant Professor of Economics, New Economic School of Moscow

Abstract: What makes people keep contracts without formal institutions? We present evidence that even in the absence of the state authority enforcing contracts, more than 70% fulfill their contractual obligations. In a sample of 3000 illicit gamblers in Pakistan, we provide experimental evidence for both reputation and credit constraints mechanisms to affect contract enforcement without a formal enforcement authority. Participants are significantly more likely to participate in the stateless economy and honor contractual obligations when faced with a threat of blacklisting from participating further in the informal institution. Extensions of the payback deadline also increases the honoring of contractual obligations. Overall, we provide experimental evidence that contract enforcement is possible without formal state enforcement and that reputation and credit constraints are key mechanisms for sustaining this economy.

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