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Contract Enforcement by the Gods

Author

Listed:
  • Schumacher, Heiner
  • Hadnes, Myriam

Abstract

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.

Suggested Citation

  • Schumacher, Heiner & Hadnes, Myriam, 2010. "Contract Enforcement by the Gods," Proceedings of the German Development Economics Conference, Hannover 2010 11, Verein für Socialpolitik, Research Committee Development Economics.
  • Handle: RePEc:zbw:gdec10:11
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    File URL: https://www.econstor.eu/bitstream/10419/40013/1/273_hadnes.pdf
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    References listed on IDEAS

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    1. 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.
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    4. Osborne, Martin J & Rubinstein, Ariel, 1998. "Games with Procedurally Rational Players," American Economic Review, American Economic Association, vol. 88(4), pages 834-847, September.
    5. 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.
    6. 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 3221-3252, December.
    7. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
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    11. Kohnert, Dirk, 2007. "On the Renaissance of African Modes of Thought - The Example of the Belief in Magic and Witchcraft," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 39-61.
    12. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Informal Contract Enforcement; Communication; Learning; Networks;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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