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Old Habits Are Hard to Change: A Case Study of Israeli Real Estate Contracts

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Abstract:

This article presents a case study on the persistent dollarization norm in the Israeli real estate market. For many years Israeli real estate contracts have been denominated in American dollars. This contracting norm has remained surprisingly stable despite tremendous changes in the structure of the Israeli foreign currency market that severed the connection between the dollar and local inflation and added significant risks to exchange rates. Using an array of theoretical tools, I explain this puzzling phenomenon and demonstrate the centrality of social norms to the design of high-stakes contracts. Finally, I explore the interaction between social norms and the law and highlight the potential obstacles to regulating contracting norms.

Document Type: Research Article

DOI: https://doi.org/10.1111/j.1540-5893.2010.00404.x

Affiliations: Hebrew University of Jerusalem

Publication date: 2010-06-01

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