|
Markus Mobius, Adam Szeidl
NBER Working Paper No. 13126
Issued in May 2007
NBER Program(s): LS
---- Abstract -----
This paper builds a theory of informal contract enforcement in social networks. In our model, relationships between individuals generate social collateral that can be used to control moral hazard when agents interact in a borrowing relationship. We define trust between two agents as the maximum amount that one can borrow from the other, and derive a simple reduced form expression for trust as a function of the social network. We show that trust is higher in more connected and more homogenous societies, and relate our trust measure to commonly used network statistics. Our model predicts that dense networks generate greater welfare when arrangements typically require high trust, and loose networks create more welfare otherwise. Using data on social networks and behavior in dictator games, we document evidence consistent with the quantitative predictions of the model.
Would you like an annual subscription to NBER Working Papers? Click
here for more information.
You may purchase this paper on-line in .pdf format
from SSRN.com ($5) for electronic delivery.
Information for subscribers and others expecting no-cost downloads
Machine-readable bibliographic record -
MARC,
RIS,
BibTeX
| 
