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Social Distance and Trust: Experimental Evidence from a Slum in Cairo

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  • Binzel, Christine

    ()
    (Heidelberg University)

  • Fehr, Dietmar

    ()
    (WZB - Social Science Research Center Berlin)

Abstract

While strong social ties help individuals cope with missing institutions, trade is essentially limited to those who are part of the social network. We examine what makes the decision to trust a stranger different from the decision to trust a member of a given social network (a friend), by comparing the determinants of these two decisions for the same individual. We implement a binary trust game with hidden action in a lab-in-the-field experiment with residents of an informal housing area in Cairo. Our results show that trust is higher among friends than among strangers and that higher trust among friends is related to the principal's belief of trustworthiness. However, on average a principal underestimates her friend's trustworthiness leading to inefficient outcomes. Our findings suggest that even within a social network, trade may often be limited to exchanges with few information asymmetries.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7183.

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Length: 25 pages
Date of creation: Jan 2013
Date of revision:
Publication status: published in: Journal of Development Economics, 2013, 103, 99-106
Handle: RePEc:iza:izadps:dp7183

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Keywords: solidarity; economic development; hidden action; trust; social distance;

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Cited by:
  1. Tsusaka, Takuji W. & Kajisa, Kei & Pede, Valerien O. & Aoyagi, Keitaro, 2013. "Neighbourhood effects and social behaviour: the case of irrigated and rainfed farmeres in Bohol, the Philippines," MPRA Paper 50162, University Library of Munich, Germany.
  2. Binzel, Christine & Fehr, Dietmar, 2013. "Giving and sorting among friends: Evidence from a lab-in-the-field experiment," Discussion Papers, Research Unit: Market Behavior SP II 2013-207, Social Science Research Center Berlin (WZB).
  3. Stefano Caria & Paolo Falco, 2014. "Do employers trust workers too little? An experimental study of trust in the labour market," CSAE Working Paper Series 2014-07, Centre for the Study of African Economies, University of Oxford.
  4. Ayako Wakano & Hiroyuki Yamada & Daichi Shimamoto, 2014. "Does the heterogeneity of project implementers affect the program participation of beneficiaries? : Evidence from rural Cambodia," Discussion Papers in Economics and Business 14-21, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

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