Contract Enforcement by the Gods

Heiner Schumacher and Myriam Hadnes

No 11, Proceedings of the German Development Economics Conference, Hannover 2010 from Verein für Socialpolitik, Research Committee Development Economics

Abstract: We propose a theory that explains why rational agents start to believe in a causal relationship between unrelated events. Agents send and collect messages through a communication network. If they are convinced of a relationship between two events, they send messages confirming their belief with higher probability than messages contradicting it. The network aggregates this communication bias over individuals. Therefore, agents may find a strong relationship between unrelated events even if the communication bias is very small. We apply this model to an informal economy where the fear of punishment by supernatural forces prevents agents from cheating others.

Keywords: Informal Contract Enforcement; Communication; Learning; Networks (search for similar items in EconPapers)
JEL-codes: C72 D03 L14 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-gth, nep-mic, nep-net and nep-soc
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