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

25 Pages Posted: 2 Feb 2013

See all articles by Christine Binzel

Christine Binzel

Heidelberg University - Alfred Weber Institute for Economics

Dietmar Fehr

Heidelberg University - Alfred Weber Institute for Economics

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.

Keywords: trust, social distance, hidden action, solidarity, economic development

JEL Classification: C72, C93, D82, O12

Suggested Citation

Binzel, Christine and Fehr, Dietmar, Social Distance and Trust: Experimental Evidence from a Slum in Cairo. IZA Discussion Paper No. 7183, Available at SSRN: https://ssrn.com/abstract=2210843 or http://dx.doi.org/10.2139/ssrn.2210843

Christine Binzel (Contact Author)

Heidelberg University - Alfred Weber Institute for Economics ( email )

Bergheimer Stra├če 58
Heidelberg, 69115
Germany

Dietmar Fehr

Heidelberg University - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

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