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Social Networks as Contract Enforcement: Evidence from a Lab Experiment in the Field

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  • Arun G. Chandrasekhar
  • Cynthia Kinnan
  • Horacio Larreguy

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.

Suggested Citation

  • 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.
  • Handle: RePEc:aea:aejapp:v:10:y:2018:i:4:p:43-78
    Note: DOI: 10.1257/app.20150057
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    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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