Community Enforcement of Informal Contracts: Jewish Diamond Merchants in New York

The diamond industry is home to many unusual features: the predominance of an ethnically homogeneous community of merchants, the norm of intergenerational family businesses, and a rejection of public courts in favor of private contract enforcement. This paper explains that the diamond industry\u27s unique attributes arise specifically to meet the particularly rigorous hazards of transacting in diamonds. Since diamonds are portable, easily concealable, and extremely valuable, the risk associated with a credit sale can be especially costly. However, the industry enjoys valuable organizational efficiencies if transactions occur on credit between independent, fully incentivized agents. Thus, an efficient system of exchange will find ways to induce merchants who purchase on credit to fulfill their payment obligations. The very features that give the diamond industry an unusual profile are responsible for providing institutions to support credit sales. A system of private arbitration spreads information regarding merchants\u27 past dealings, so a reputation mechanism to monitor merchants can take hold. Intergenerational legacies, though restricting entry only to those who can inherit good reputations from family members, resolve an end-game problem and induce merchants to deal honestly through their very last transaction. And the participation of Ultra-Orthodox Jews, for whom inclusion and participation in their communities is equally paramount to their material wealth, serve important value-added services as diamond cutters and brokers without posing the threat of theft and flight

Networks of Relations

We model networks of relational (or implicit)contracts, exploring how sanctioning power and equilibrium conditions change under different network configurations and information transmission technologies. In our model, relations are the links, and the value of the network lies in its ability to enforce cooperative agreements that could not be sustained if agents had no access to other network members’ sanctioning power and information. We identify conditions for network stability and in-network information transmission as well as conditions under which stable subnetworks inhibit more valuable larger networks.Networks; Relational Contracts; Peering; Indirect Multimarket Contact; Information transmission; Social Capital.

Social Norms, Information and Trust among Strangers: Theory and Evidence

Can a social norm of trust and reciprocity emerge among strangers? We investigate this question by examining behavior in an experiment where subjects repeatedly play a two-player binary ―trust‖ game. Players are randomly and anonymously paired with one another in each period. The main questions addressed are whether a social norm of trust and reciprocity emerges under the most extreme information restriction (anonymous community-wide enforcement) or whether trust and reciprocity require additional, individual-specific information about a player’s past history of play and whether that information must be provided freely or at some cost. In the absence of such reputational information, we find that a social norm of trust and reciprocity is difficult to sustain. The provision of reputational information on past individual decisions significantly increases trust and reciprocity, with longer histories yielding the best outcomes. Importantly, we find that making reputational information available at a small cost may also lead to a significant improvement in trust and reciprocity, despite the fact that most subjects do not choose to purchase this information.Social Norms, Trust Game, Random Matching, Trust and Reciprocity, Information, Reputational Mechanisms, Experimental Economics.

Constructing social division to support cooperation : theory and evidence from Nepal

Many societies are divided into multiple smaller groups. The defining feature of these groups is that certain kinds of interaction are more likely to take place within a group than across groups. I build a model in which group divisions are enforced through a reputational penalty for interacting with members of different groups. Agents who interact with members of different groups find that they can support lower levels of cooperation in the future. The model explains why agents may be punished by the other members of their group for interacting with members of different groups and why agents are punished for interacting with members of some groups but not others. I test the empirical implication that there should be less cooperation among members of groups that make up a larger percentage of their communities. I discuss the origin and possible future of social division

Social structure and reputation: the NASDAQ case study

In 1996, two investigations conducted by the Securities and Exchange Commission and the American Department of Justice reported non-competitive practices among market makers on the NASDAQ. These reports also mentioned the influence of the NASDAQ social structure on market makers' behaviours. Most market makers adopted social norms in order to increase significantly their income at the expense of the customers. This paper aims to explain the rise and long-term effects of non-competitive practices, through the integration of a concrete view of "embeddedness" (Granovetter, 1985). We propose the use of game theory tools to achieve this goal. A rereading of Kreps' model of reputation sheds light on its structural dimension and illustrates the way social structure governs individual behaviours.NASDAQ, non-competitive behaviours, embeddedness, social structure, game theory, reputation, trust

Repeated games and networks

The chapter provides an overview of recent results on infinitely repeated games in which monitoring and interactions are local. The chapter surveys Folk Theorems for games with local monitoring, and results characterizing optimal punishments in separable local public goods games. The relationship between the monitoring structure and the equilibrium correspondence is a key topic of enquiry. Results clarify the roles played by contagion, ostracism, and communication in shaping equilibrium outcomes. Understanding how network measures of social cohesion and of information diffusion can affect trust in communities is the main applied aim of the literature.</p

The mechanics of trust: a framework for research and design

With an increasing number of technologies supporting transactions over distance and replacing traditional forms of interaction, designing for trust in mediated interactions has become a key concern for researchers in human computer interaction (HCI). While much of this research focuses on increasing users’ trust, we present a framework that shifts the perspective towards factors that support trustworthy behavior. In a second step, we analyze how the presence of these factors can be signalled. We argue that it is essential to take a systemic perspective for enabling well-placed trust and trustworthy behavior in the long term. For our analysis we draw on relevant research from sociology, economics, and psychology, as well as HCI. We identify contextual properties (motivation based on temporal, social, and institutional embeddedness) and the actor's intrinsic properties (ability, and motivation based on internalized norms and benevolence) that form the basis of trustworthy behavior. Our analysis provides a frame of reference for the design of studies on trust in technology-mediated interactions, as well as a guide for identifying trust requirements in design processes. We demonstrate the application of the framework in three scenarios: call centre interactions, B2C e-commerce, and voice-enabled on-line gaming

Contract Enforcement, Institutions and Social Capital: The Maghribi Traders Reappraised

Economists draw important lessons for modern development from the medieval Maghribi traders who, according to Greif, enforced contracts multilaterally through a closed, private-order ‘coalition’. We show that this view is untenable. The Maghribis used formal legal mechanisms and entered business associations with non-Maghribis. Not a single empirical example adduced by Greif shows that any ‘coalition’ actually existed. The Maghribis cannot be used to argue that the social capital of exclusive networks will facilitate exchange in developing economies. Nor do they provide any support for the cultural theories of economic development and institutional change for which they have been mobilised