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Social Distance and Trust: Experimental Evidence from a Slum in Cairo

Christine Binzel () and Dietmar Fehr

No 7183, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: While strong social ties help individuals cope with missing institutions, trade is essentially limited to those who are part of the social network. We examine what makes the decision to trust a stranger different from the decision to trust a member of a given social network (a friend), by comparing the determinants of these two decisions for the same individual. We implement a binary trust game with hidden action in a lab-in-the-field experiment with residents of an informal housing area in Cairo. Our results show that trust is higher among friends than among strangers and that higher trust among friends is related to the principal's belief of trustworthiness. However, on average a principal underestimates her friend's trustworthiness leading to inefficient outcomes. Our findings suggest that even within a social network, trade may often be limited to exchanges with few information asymmetries.

Keywords: solidarity; economic development; hidden action; trust; social distance (search for similar items in EconPapers)
JEL-codes: C72 C93 D82 O12 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2013-01
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp, nep-gth, nep-soc and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

Published - published in: Journal of Development Economics, 2013, 103, 99-106

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