To friends everything, to strangers the law? An experiment on contract enforcement and group identity

Marian Panganiban

No 2015-015, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: Although the role of formal and informal institutions in promoting eco- nomic growth and sustaining exchange relations is now well established, explaining and differentiating how informal and formal rules affect indi- vidual behavior remain a challenge. This study aims to distill the essential characteristics of formal and informal institutions and disentangle their effects on trust and performance in exchange relations through a labora- tory experiment. Formal institutions are modeled as third-party contract enforcement while informal institutions are represented as shared group identity. Results show that trust choices increase as contract enforcement increases but are not affected by shared group identity. However, perfor- mance is more likely to occur in interactions with in-group members than out-group members.

Keywords: institutions; exchange relations; contract enforcement; group identity; laboratory experiments (search for similar items in EconPapers)
JEL-codes: C72 C91 D03 D81 (search for similar items in EconPapers)
Date: 2015-10-09
New Economics Papers: this item is included in nep-cbe, nep-cta, nep-evo, nep-exp, nep-hpe, nep-hrm and nep-soc
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Persistent link: https://EconPapers.repec.org/RePEc:jrp:jrpwrp:2015-015

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