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To friends everything, to strangers the law? An experiment on contract enforcement and group identity

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  • Marian Panganiban

    () (Max Planck Institute for Research on Collective Goods, Bonn, and Friedrich-Schiller-Universität, Jena)

Abstract

Although the role of formal and informal institutions in promoting economic growth and sustaining exchange relations is now well established, explaining and differentiating how informal and formal rules affect individual behavior remain a challenge. This study aims to distill the essential characteristics of formal and informal institutions and disentangle their effects on trust and performance in exchange relations through a laboratory experiment. Formal institutions are modeled as third-party contract enforcement while informal institutions are represented as shared group identity. Results show that trust choices increase as contract enforcement increases but are not affected by shared group identity. However, performance is more likely to occur in interactions with in-group members than out-group members.

Suggested Citation

  • Marian Panganiban, 2015. "To friends everything, to strangers the law? An experiment on contract enforcement and group identity," Jena Economic Research Papers 2015-015, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2015-015
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    References listed on IDEAS

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    More about this item

    Keywords

    institutions; exchange relations; contract enforcement; group identity; laboratory experiments;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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