Social Networks as Contract Enforcement: Evidence from a Lab Experiment in the Field

46 Pages Posted: 30 Jun 2014

See all articles by Arun G. Chandrasekhar

Arun G. Chandrasekhar

Stanford University - Department of Economics

Cynthia Kinnan

Northwestern University - Department of Economics

Horacio Larreguy Arbesu

Harvard University

Date Written: June 2014

Abstract

Absence of well-functioning formal institutions leads to reliance on social networks to enforce informal contracts. Social ties may aid cooperation, but agents vary in network centrality, and this hierarchy may hinder cooperation. To assess the extent to which networks substitute for enforcement, we conducted high-stakes games across 34 Indian villages. We randomized subjects' partners and whether contracts were enforced to estimate how partners' relative network position differentially matters across contracting environments. Socially close pairs cooperate even without enforcement; distant pairs do not. Pairs with unequal importance behave less cooperatively without enforcement. Thus capacity for cooperation depends on the underlying network.

Suggested Citation

Chandrasekhar, Arun G. and Kinnan, Cynthia and Larreguy Arbesu, Horacio, Social Networks as Contract Enforcement: Evidence from a Lab Experiment in the Field (June 2014). NBER Working Paper No. w20259, Available at SSRN: https://ssrn.com/abstract=2460578

Arun G. Chandrasekhar (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Cynthia Kinnan

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

Horacio Larreguy Arbesu

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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