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Social Relationships and Trust

Author

Listed:
  • Christine Binzel
  • Dietmar Fehr

Abstract

While social relationships play an important role for individuals to cope with missing market institutions, they also limit individuals' range of trading partners. This paper aims at understanding the determinants of trust at various social distances when information asymmetries are present. Among participants from an informal housing area in Cairo we find that the increase in trust following a reduction in social distance comes from the fact that trustors are much more inclined to follow their beliefs when interacting with their friend. When interacting with an ex-ante unknown agent instead, the decision to trust is mainly driven by social preferences. Nevertheless, trustors underestimate their friend's intrinsic motivation to cooperate, leading to a loss in social welfare. We relate this to the agents' inability to signal their trustworthiness in an environment characterized by strong social norms.

Suggested Citation

  • Christine Binzel & Dietmar Fehr, 2010. "Social Relationships and Trust," Discussion Papers of DIW Berlin 1007, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1007
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.357052.de/dp1007.pdf
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    Cited by:

    1. repec:hum:wpaper:sfb649dp2010-056 is not listed on IDEAS
    2. Nicoletta Berardi, 2013. "Social networks and wages in Senegal’s labor market," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-26, December.
    3. repec:hum:wpaper:sfb649dp2010-055 is not listed on IDEAS
    4. repec:hum:wpaper:sfb649dp2010-032 is not listed on IDEAS
    5. repec:hum:wpaper:sfb649dp2010-061 is not listed on IDEAS
    6. repec:hum:wpaper:sfb649dp2010-054 is not listed on IDEAS
    7. repec:hum:wpaper:sfb649dp2010-037 is not listed on IDEAS
    8. Binzel, Christine & Fehr, Dietmar, 2013. "Social distance and trust: Experimental evidence from a slum in Cairo," Journal of Development Economics, Elsevier, vol. 103(C), pages 99-106.
    9. repec:hum:wpaper:sfb649dp2010-035 is not listed on IDEAS
    10. repec:hum:wpaper:sfb649dp2010-059 is not listed on IDEAS
    11. repec:hum:wpaper:sfb649dp2010-047 is not listed on IDEAS
    12. repec:hum:wpaper:sfb649dp2010-051 is not listed on IDEAS
    13. repec:hum:wpaper:sfb649dp2010-034 is not listed on IDEAS
    14. repec:hum:wpaper:sfb649dp2010-050 is not listed on IDEAS
    15. repec:hum:wpaper:sfb649dp2010-049 is not listed on IDEAS
    16. repec:hum:wpaper:sfb649dp2010-045 is not listed on IDEAS

    More about this item

    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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