Hire-purchase contracts can substitute for personal trust in lending to strangers

Evidence

When he had enough cash in hand to buy a vehicle for £2000—£3000, he would pick out one from his pool in reserve (many of whom lived in his household of some 80 persons). He would then write up a contract, adding £1000 to the sale price, selling it to the driver at £10 a day, witha clause giving him the right to seize the bus if the driver missed three successive days’ payments. The driver is responsible for maintenance, but if he is in difficulties the entrepreneur pays for the repairs and adds the cost to the total to be repaid. In the interest of quick turnover, he is anxious that the vehicle should not lie idle for long. Most drivers take one to one and a half years to buy their bus or taxi. — Diego Gambetta, Trust - Making and Breaking Cooperative…, 2371

Categorization

• XREF: Directly supports the reader’s Hardin thesis: enforceable contracts (observable constraints) substitute for trust exactly as Hardin predicts.
• SEED: A concrete micro-case for an essay on how self-enforcing contract design replaces costly trust in low-trust markets.