Mobilizing Investment Through Social Networks: Evidence from a Lab Experiment in the Field
Coauthor(s): Arun Chandrasekhar, Horacio Larreguy.
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We conduct laboratory experiments in rural Indian villages to investigate how social networks can be used to design informal contracting institutions. Participants play investment games with and without third-party monitors and punishers and can observe the identities of the other players. We find that socially close pairs achieve relatively efficient outcomes without third-party intervention. Socially far pairs benefit from third party punishment when the punisher is network-central, but obtain lower payoffs when the punisher is network-peripheral. We show that these results cannot be explained by monitoring or by the punisher's demographic characteristics such as elite status, education, caste, or wealth.
Breza, Emily, Arun Chandrasekhar, and Horacio Larreguy. "Mobilizing Investment Through Social Networks: Evidence from a Lab Experiment in the Field." Columbia Business School, October 2013.