American Economic Journal:
Applied Economics
ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)
Social Networks as Contract Enforcement: Evidence from a Lab Experiment in the Field
American Economic Journal: Applied Economics
vol. 10,
no. 4, October 2018
(pp. 43–78)
Abstract
Lack of well-functioning formal institutions leads to reliance on social networks to enforce informal contracts. Social proximity and network centrality may affect cooperation. To assess the extent to which networks substitute for enforcement, we conducted high-stakes games across 34 Indian villages. We randomized subjects' partners and whether contracts were enforced to estimate how partners' relative network position differentially matters across contracting environments. While socially close pairs cooperate even without enforcement, distant pairs do not. Individuals with more central partners behave more cooperatively without enforcement. Capacity for cooperation in the absence of contract enforcement, therefore, depends on the subjects' network position.Citation
Chandrasekhar, Arun G., Cynthia Kinnan, and Horacio Larreguy. 2018. "Social Networks as Contract Enforcement: Evidence from a Lab Experiment in the Field." American Economic Journal: Applied Economics, 10 (4): 43–78. DOI: 10.1257/app.20150057Additional Materials
JEL Classification
- C93 Field Experiments
- D86 Economics of Contract: Theory
- K12 Contract Law
- O15 Economic Development: Human Resources; Human Development; Income Distribution; Migration
- O17 Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- Z13 Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
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