AbstractWe 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.
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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.