Whither Formal Contracts?

To measure the benefits of formal contract enforcement for society, I create a market with merchants and buyers, in which buyers can choose whether to buy, pay. A set multiple “state‐favored” ethnic groups control state. experimentally vary contracts are required composition buyer‐merchant pairs. The design separately identifies effect on buyers' incentive pay their buy. document two ways society limits contracts. First, reduce buyer cheating, thus increasing merchants' profits, if, only merchant is state‐favored. Buyers' beliefs suggest that enforce Second, holding constant pair state‐favored, influence choices when belong two, different, state‐favored groups. confirm that, case, expected be enforceable, but they have no because reputation already governs incentives cheat within findings temper view state as independent from offer rationale why not adopted, nuance notion weakness.