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Contract Enforcement by the Gods

  • Schumacher, Heiner
  • Hadnes, Myriam
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    We propose a theory that explains why rational agents start to believe in a causal relationship between unrelated events. Agents send and collect messages through a communication network. If they are convinced of a relationship between two events, they send messages confirming their belief with higher probability than messages contradicting it. The network aggregates this communication bias over individuals. Therefore, agents may find a strong relationship between unrelated events even if the communication bias is very small. We apply this model to an informal economy where the fear of punishment by supernatural forces prevents agents from cheating others.

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    File URL: http://econstor.eu/bitstream/10419/40013/1/273_hadnes.pdf
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    Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Hannover 2010 with number 11.

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    Date of creation: 2010
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    Handle: RePEc:zbw:gdec10:11
    Contact details of provider: Web page: http://www.ael.ethz.ch/

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    1. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
    2. Zwiebel, Jeffrey H. & Vayanos, Dimitri & DeMarzo, Peter M., 2001. "Persuasion Bias, Social Influence, and Uni-Dimensional Opinions," Research Papers 1719, Stanford University, Graduate School of Business.
    3. Nathan Nunn & Leonard Wantchekon, 2011. "The Slave Trade and the Origins of Mistrust in Africa," American Economic Review, American Economic Association, vol. 101(7), pages 3221-52, December.
    4. Martin J. Osborne & Ariel Rubinstein, 1997. "Games with Procedurally Rational Players," Department of Economics Working Papers 1997-02, McMaster University.
    5. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
    6. Kohnert, Dirk, 1996. "Magic and witchcraft: Implications for democratization and poverty-alleviating aid in Africa," World Development, Elsevier, vol. 24(8), pages 1347-1355, August.
    7. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 63-80, January.
    8. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
    9. Kohnert, Dirk, 2007. "On the Renaissance of African Modes of Thought - The Example of the Belief in Magic and Witchcraft," MPRA Paper 7019, University Library of Munich, Germany.
    10. Anderson, Siwan & Baland, Jean-Marie & Moene, Karl Ove, 2009. "Enforcement in informal saving groups," Journal of Development Economics, Elsevier, vol. 90(1), pages 14-23, September.
    11. Platteau, Jean-Philippe, 2009. "Institutional obstacles to African economic development: State, ethnicity, and custom," Journal of Economic Behavior & Organization, Elsevier, vol. 71(3), pages 669-689, September.
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