Reputation and relational contracting: Experimental evidence on contracting frictions in West African trade (with Meredith Startz) Supported by: The Centre for Economic Policy Research, Innovations for Poverty Action, and the International Growth Centre
Entrepreneurs worldwide face contracting problems – how to ensure that you receive goods, services, or payment as promised? In theory, freely flowing information about past behavior can substitute for formalcontract enforcement; firms concerned about maintaining a public reputation will be less inclined to behave opportunistically. However, little is known about whether or how reputation alleviates contracting frictions in practice. In this project, we examine a setting in which reputational forces appear to be weak – used clothing wholesalers in Lagos do not typically share information with one another about their experiences with suppliers, and tell us that “business is secret.” Instead, traders put large amounts of time and money into individually monitoring every transaction. Traders travel to neighboring Benin to make purchases in face-to-face transactions sometimes as often as every two weeks. We experimentally vary information flows among Nigerian wholesalers via an innovative escrow service. We investigate whether increased access to reputational information improves market outcomes and substitutes for costly monitoring, and whether it operates by identifying good and bad types among potential partners, or by providing a direct disincentive to behave badly in a given transaction.
The Lagos Trader Survey (with Meredith Startz) Supported by: The Centre for Economic Policy Research
The Lagos Trader Survey is a representative survey of 1,400 traders in physical markets or plazas (multi-story buildings) in Lagos, Nigeria. The survey asked questions about transactions, travel, market organization, and politics. Traders were sampled from an original listing of 52,193 shops in Lagos. The first round of the survey was conducted in the summer of 2015, and the second round in the spring of 2016.