Trust, risk, and institutions: experimental evidence from a community of firms in Kenya

We study whether personal relationships amongst firms can foster trust as a mechanism to overcome challenging business environments. In partnership with a community of small- and medium-scale enterprises in Kenya, we implemented trust games in a framed field experiment. Our main finding is that outside enforcement of exchanges most effectively increases amounts sent to recipients. A secondary finding is that active members of the business association may be more trusting of fellow members when identities are to be revealed compared to when decisions remain anonymous. Our findings suggest that while association-based networking can perhaps partially offset an adverse business environment, in trust-related decision-making, such informal mechanisms do not fully compensate for lack of outside enforcement that can result from weak institutions.