Lack of well-functioning formal institutions leads to reliance on social networks to enforce informal contracts. Social proximity and network centrality may affect 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. While socially close pairs cooperate even without enforcement, distant pairs do not. Individuals with more central partners behave more cooperatively without enforcement. Capacity for cooperation in the absence of contract enforcement, therefore, depends on the subjects' network position.
Chandrasekhar, Arun G., Cynthia Kinnan, and Horacio Larreguy.
"Social Networks as Contract Enforcement: Evidence from a Lab Experiment in the Field."
American Economic Journal: Applied Economics,
Economics of Contract: Theory
Economic Development: Human Resources; Human Development; Income Distribution; Migration
Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification