This paper builds a theory of trust based on informal contract enforcement in social networks. In our model, network connections between individuals can be used as social collateral to secure informal borrowing. We define network-based trust as the largest amount one agent can borrow from another agent and derive a reduced-form expression for this quantity, which we then use in three applications. (1) We predict that dense networks generate bonding social capital that allows transacting valuable assets, whereas loose networks create bridging social capital that improves access to cheap favors such as information. (2) For job recommendation networks, we show that strong ties between employers and trusted recommenders reduce asymmetric information about the quality of job candidates. (3) Using data from Peru, we show empirically that network-based trust predicts informal borrowing, and we structurally estimate and test our model.
%0 Journal Article
%1 karlandean2009trust
%A Karlan, Dean,
%A Mobius, Markus,
%A Rosenblat, Tanya,
%A Szeidl, Adam,
%D 2009
%J Quarterly Journal of Economics
%K 2009 FDZ_IUP ISSP ISSP_input2016 SCOPUSindexed SSCIindexed article checked indexproved input2016 isspbib2016 jak review_proved
%N 3
%P 1307-1361
%R 10.1162/qjec.2009.124.3.1307
%T Trust and Social Collateral
%U https://doi.org/10.1162/qjec.2009.124.3.1307
%V 124
%X This paper builds a theory of trust based on informal contract enforcement in social networks. In our model, network connections between individuals can be used as social collateral to secure informal borrowing. We define network-based trust as the largest amount one agent can borrow from another agent and derive a reduced-form expression for this quantity, which we then use in three applications. (1) We predict that dense networks generate bonding social capital that allows transacting valuable assets, whereas loose networks create bridging social capital that improves access to cheap favors such as information. (2) For job recommendation networks, we show that strong ties between employers and trusted recommenders reduce asymmetric information about the quality of job candidates. (3) Using data from Peru, we show empirically that network-based trust predicts informal borrowing, and we structurally estimate and test our model.
@article{karlandean2009trust,
abstract = {This paper builds a theory of trust based on informal contract enforcement in social networks. In our model, network connections between individuals can be used as social collateral to secure informal borrowing. We define network-based trust as the largest amount one agent can borrow from another agent and derive a reduced-form expression for this quantity, which we then use in three applications. (1) We predict that dense networks generate bonding social capital that allows transacting valuable assets, whereas loose networks create bridging social capital that improves access to cheap favors such as information. (2) For job recommendation networks, we show that strong ties between employers and trusted recommenders reduce asymmetric information about the quality of job candidates. (3) Using data from Peru, we show empirically that network-based trust predicts informal borrowing, and we structurally estimate and test our model.},
added-at = {2019-03-20T18:49:19.000+0100},
author = {{Karlan, Dean} and {Mobius, Markus} and {Rosenblat, Tanya} and {Szeidl, Adam}},
biburl = {https://www.bibsonomy.org/bibtex/2be51fa95587d3312ec0800e0d9dc4e03/gesis_dump},
doi = {10.1162/qjec.2009.124.3.1307},
interhash = {bdef383585664588801bd1d38b629bb1},
intrahash = {be51fa95587d3312ec0800e0d9dc4e03},
journal = {Quarterly Journal of Economics },
keywords = {2009 FDZ_IUP ISSP ISSP_input2016 SCOPUSindexed SSCIindexed article checked indexproved input2016 isspbib2016 jak review_proved},
note = {https://doi.org/10.1162/qjec.2009.124.3.1307. (ISSP)},
number = 3,
pages = {1307-1361},
tagadata-svko-dda-test = {11059},
tagadata-svkoddatest2 = {11052},
timestamp = {2019-10-01T13:01:46.000+0200},
title = {Trust and Social Collateral},
url = {https://doi.org/10.1162/qjec.2009.124.3.1307},
volume = 124,
year = 2009
}