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

Author Info

Listed author(s):
  • 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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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
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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Find related papers by 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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Cited by:

  1. Shoji, Masahiro, 2016. "Incentive of risk sharing and trust formation: Experimental and survey evidence from Bangladesh," MPRA Paper 71950, University Library of Munich, Germany.
  2. Heinrich, Timo & Brosig-Koch, Jeannette, 2015. "Promises and Social Distance in Buyer-Determined Procurement Auctions," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112892, Verein für Socialpolitik / German Economic Association.
  3. Batista, Catia & Silverman, Dan & Yang, Dean, 2015. "Directed giving: Evidence from an inter-household transfer experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 118(C), pages 2-21.
  4. Simeon Schudy & Verena Utikal, 2015. "'You must not know about me' - On the willingness to share personal data," TWI Research Paper Series 99, Thurgauer Wirtschaftsinstitut, Universit�t Konstanz.
  5. 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 50130, University Library of Munich, Germany.
  6. Binzel, Christine & Fehr, Dietmar, 2013. "Giving and sorting among friends: Evidence from a lab-in-the-field experiment," Economics Letters, Elsevier, vol. 121(2), pages 214-217.
  7. Cadsby, C. Bram & Du, Ninghua & Song, Fei & Yao, Lan, 2015. "Promise keeping, relational closeness, and identifiability: An experimental investigation in China," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 57(C), pages 120-133.
  8. Tsusaka, Takuji W. & Kajisa, Kei & Pede, Valerien O. & Aoyagi, Keitaro, 2015. "Neighborhood effects and social behavior: The case of irrigated and rainfed farmers in Bohol, the Philippines," Journal of Economic Behavior & Organization, Elsevier, vol. 118(C), pages 227-246.
  9. Tom Lane, 2015. "Discrimination in the laboratory: a meta-analysis," Discussion Papers 2015-03, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  10. 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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