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Social Capital and Informal Contracting: Experimental Evidence

Author

Listed:
  • Bruno Pellegrino

    (UCLA Anderson School of Management)

Abstract

Informal contracting is widely spread, but what makes it work in the absence of institutional enforcement and repetition? According to game-theoretic models of social capital, informal relationships can help agents self-enforce contracts when third-party enforcement is not available, because agents can use network links as a form of “collateral†. While recent empirical studies find a link between network proximity and the ability to self-enforce contracts, it is unclear whether this effect is mediated by agents behaving altruistically or whether they are responding to incentives to preserve their network status. Additionally, the endogeneity of natural networks makes econometric identification of these effects challenging. In this study, I estimate a structural decision model in which both mechanisms are present but distinct, using experimental gameplay data from the administration of an Optional Prisoner's Dilemma. The game is framed to mimic a situation of informal exchange. I find the gameplay to be consistent with the “social collateral†channel, but not with the “directed altruism†channel.

Suggested Citation

  • Bruno Pellegrino, 2019. "Social Capital and Informal Contracting: Experimental Evidence," Economics Bulletin, AccessEcon, vol. 39(2), pages 1259-1265.
  • Handle: RePEc:ebl:ecbull:eb-19-00352
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    File URL: http://www.accessecon.com/Pubs/EB/2019/Volume39/EB-19-V39-I2-P120.pdf
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    References listed on IDEAS

    as
    1. Stephen Leider & Markus M. Möbius & Tanya Rosenblat & Quoc-Anh Do, 2009. "Directed Altruism and Enforced Reciprocity in Social Networks," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1815-1851.
    2. Arun G. Chandrasekhar & Cynthia Kinnan & Horacio Larreguy, 2018. "Social Networks as Contract Enforcement: Evidence from a Lab Experiment in the Field," American Economic Journal: Applied Economics, American Economic Association, vol. 10(4), pages 43-78, October.
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    More about this item

    Keywords

    Social Capital; Network; Trust; Game; Experiment; Informality; Contracts; Social Collateral; Altruism;
    All these keywords.

    JEL classification:

    • Z1 - Other Special Topics - - Cultural Economics
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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