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Title:Contract Enforcement by the Gods PDF Logo
Authors:Schumacher, Heiner
Hadnes, Myriam
Issue Date:2010
Series/Report no.:Proceedings of the German Development Economics Conference, Hannover 2010 11
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.
Subjects:Informal Contract Enforcement
Communication
Learning
Networks
JEL:C72
D03
L14
Document Type:Conference Paper
Appears in Collections:Proceedings of the German Development Economics Conference, 2010 (Hannover)

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