Social networks as contract enforcement: Evidence from a lab experiment in the field

Arun G. Chandrasekhar, Cynthia Kinnan, Horacio Larreguy

Research output: Contribution to journalArticle

4 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)43-78
Number of pages36
JournalAmerican Economic Journal: Applied Economics
Volume10
Issue number4
DOIs
StatePublished - Oct 1 2018

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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