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Network Centrality and Informal Institutions: Evidence from a Lab Experiment in the Field

May 2016
Working Paper
562
Emily Breza, Arun Chandrasekhar, Horacio Larreguy
While social closeness mitigates contractual incompleteness, we examine how communities can enlist third parties to improve cooperation between socially distant pairs. Network-central members may be particularly effective at this role through two channels: information and enforcement. We conduct modified trust games (with and without third parties) in 40 Indian villages to measure the effectiveness of central third parties. Assigning a punisher at the 75th percentile of the centrality distribution (versus the 25th) increases efficiency by 21%. 2/5 of the effect is attributed to information and 3/5 to enforcement. Central punishers are most valuable when senders and receivers are socially distant.
Publication Keywords: 
Social Networks
Institutional Structure
Informal Contracting
Geographic Regions: