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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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    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
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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.
    2. Osborne, Martin J & Rubinstein, Ariel, 1998. "Games with Procedurally Rational Players," American Economic Review, American Economic Association, vol. 88(4), pages 834-47, September.
    3. Rani Spiegler, 2005. "The Market for Quacks," Levine's Bibliography 784828000000000634, UCLA Department of Economics.
    4. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 63-80, January.
    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. 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.
    7. Nathan Nunn & Leonard Wantchekon, 2009. "The Slave Trade and the Origins of Mistrust in Africa," NBER Working Papers 14783, National Bureau of Economic Research, Inc.
    8. 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.
    9. 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.
    10. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    11. Peter M. Demarzo & Dimitri Vayanos & Jeffrey Zwiebel, 2003. "Persuasion Bias, Social Influence, And Unidimensional Opinions," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 909-968, August.
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