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Able but Unwilling to Enforce: Cooperative Dilemmas in Group Lending

Sabin, Nicholas and Reed-Tsochas, Felix (2018) Able but Unwilling to Enforce: Cooperative Dilemmas in Group Lending. Saïd Business School Working Paper.

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How does a group’s social structure influence informal sanctioning behavior in cooperative dilemmas? It is generally accepted that the ability to punish non-cooperators increases with greater social connectedness and should improve cooperation. However, this hypothecated ability often does not correspond to the observed collective outcomes. We propose that an important missing factor that can determine collective outcomes is the structural effect on the willingness to punish. In this paper, we develop a theoretical framework in which variation in a group’s social structure produces a tension between ability and willingness to enforce sanctions. These tendencies are often in conflict because the same underlying social mechanisms that promote the ability to sanction often decrease the interest in carrying out the punishment. The empirical support for our framework involves an in-depth analysis of group lending in Sierra Leone. Group lending reflects a clear cooperative dilemma: if one member does not repay, the others are held financially responsible. We complement statistical modelling with ethnographic analysis in a nested research design, the highest level including 5,582 repayments made by 1,884 borrowers. Two measures of a group’s social structure, (1) structural cohesion and (2) disconnected subgroups, are examined in light of the ability and willingness to enforce. We find that structural cohesion consistently increases economic cooperation to a point, beyond which unwillingness to punish outweighs the benefits of increased ability, resulting in worse group repayment. Furthermore, groups that consist of disconnected subgroups are more willing to punish defectors in the out-subgroup. However, they are less able to effectively sanction and overall performance suffers. The distinction between ability and willingness allows one to better explain collective outcomes that are non-monotonic and sensitive to interaction effects.

Item Type: Oxford Saïd Research Paper
Additional Information: Updated version of SBS WPs 2017-19 and 2014-9
Keywords: Africa, economy, geography, social capital, social networks, complexity
Subject(s): Complexity
Social entrepreneurship
Centre: CABDyN Complexity Centre
Date Deposited: 31 Oct 2018 15:09
Last Modified: 07 Nov 2018 16:04

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