Abstract: We study the effect of relational proximity—the degree to which economic relationships are personal or impersonal—on efficiency in different contracting environments. Field evidence concerning which type of relational proximity is more effective is inconclusive. On one hand, individualistic values associated with impersonal business relationships have been linked to high economic development. On the other hand, there is plenty of evidence that more personal relationships lead to more cooperation and prosocial behavior. We demonstrate with a laboratory experiment that this seemingly-contradictory evidence is the result of differences in the enforceability of contracts. With enforceable contracts and low economic uncertainty, impersonal relationships promote efficiency by facilitate competition. With unenforceable contracts and high economic uncertainly, personal relationships prevent the collapse of economic interaction and thus sustain economic efficiency.
Presented by:
Ernesto Reuben, NYU Abu Dhabi (work with Manuel Muñoz-Herrera)
Date & time:
October 20, 2017 12:00 pm - October 20, 2017 1:00 pm
Venue:
2N2.5B.24: ISER Boardroom (subject to change)
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