Working Paper: NBER ID: w20259
Authors: Arun G. Chandrasekhar; Cynthia Kinnan; Horacio Larreguy
Abstract: Absence of well-functioning formal institutions leads to reliance on social networks to enforce informal contracts. Social ties may aid cooperation, but agents vary in network centrality, and this hierarchy may hinder 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. Socially close pairs cooperate even without enforcement; distant pairs do not. Pairs with unequal importance behave less cooperatively without enforcement. Thus capacity for cooperation depends on the underlying network.
Keywords: social networks; contract enforcement; cooperation; lab experiment
JEL Codes: D03; D14; O16; Z13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| social ties (Z13) | cooperative behavior (C71) |
| social proximity (Z13) | cooperation (P13) |
| social distance (Z13) | consumption variability (D11) |
| social distance (Z13) | transfers (F16) |
| unequal centrality (D30) | cooperative behavior (C71) |
| savings technology (O16) | cooperation dynamics (D70) |