Vortrag
Social Relationships and Trust

Christine Binzel, Dietmar Fehr


25th Annual Congress of the European Economic Association : EEA 2010
Glasgow, Großbritannien, 23.08.2010 - 26.08.2010



Abstract:
Social connections play an important role for people coping with insecure living conditions. We analyze whether a reduction in trade partners¿ social distance helps overcome information asymmetries in a two-person exchange. Reduced social distance leads to more trust and cooperation among participants from an informal-housing area in Cairo. Although this higher cooperation is reflected by higher solidarity, principals underestimate their friend¿s intrinsic motivation to cooperate leading to a loss in social welfare. We relate this to agents¿ inability to signal their trustworthiness and to principals¿ limited control over the agent in the trust game.

Abstract

Social connections play an important role for people coping with insecure living conditions. We analyze whether a reduction in trade partners¿ social distance helps overcome information asymmetries in a two-person exchange. Reduced social distance leads to more trust and cooperation among participants from an informal-housing area in Cairo. Although this higher cooperation is reflected by higher solidarity, principals underestimate their friend¿s intrinsic motivation to cooperate leading to a loss in social welfare. We relate this to agents¿ inability to signal their trustworthiness and to principals¿ limited control over the agent in the trust game.



JEL-Classification: C72;C93;D82;O12
Keywords: trust, hidden action, social distance, solidarity, reciprocity
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