Research Project: Trust Games among Aymara in El Alto, Bolivia Working Title: “Trusting Your Neighbors: Trust and Social Capital under Informal Institutions”
Juan Cristóbal Birbuet CPTS – La Paz
Jörg Franke TU Dortmund
Carlos Gustavo Machicado Salas INESAD – La Paz
December 10th, 2014
Abstract Trust and social capital facilitate economic interactions and beneficial exchange especially in situations where formal institution are weak or absent. While previous experimental studies in developing countries analyzed how social capital and trust enable the formation of informal institutions, their focus was mainly restricted to small-scale indigenous societies. Instead, the proposed quasi-field experiment is planned to take place in one of the fastest growing cities in South America, the city of El Alto, Bolivia, which has also one of the highest poverty rates and is mainly populated by indigenous Aymara. More importantly, formal institutions like official bureaucracy are rather weak and de-facto substituted by a decentralized and parallel informal structure of locally organized neighborhood committees and/or local trade union associations. A series of trust games will shed light on the question whether the local structure of these decentralized, informal and participatory organizations has an impact on individuals’ trust and trustworthiness. Additionally, the relation between trust and risk attitudes and inversus out group bias will be evaluated.
Keywords: Trust, social capital, informal institutions, Bolivia, El Alto, Aymara
1.
Introduction
Most economic interactions require binding commitments by agents to achieve efficient and mutually beneficial outcomes. In societies with effective formal institutions the rule of law guarantees that property rights are well defined and that agreements or contracts can be made formally binding. However, in societies where formal institutions are weak or absent, alternative methods of commitment based on informal institutions, like social norms, reciprocity, or trust must substitute the lacking power of formal institutions. The prominent study of Ostrom (1990), for instance, provides several case studies of the common pool resource problem and analyzes under what conditions these types of the collective action problem can be overcome based on self-organization of affected agents and the resulting evolution of social norms. It has been argued that social capital, incorporating trust and reciprocity, enables the formation of informal institutions which can to some extent overcome the problems stemming from weak formal institutions, especially in situations that are characterized by local interactions; see Bowles and Gintis (2002). While the concept of social capital is to some extent ambiguous, see the discussion in Sobel (2002), the importance of trust and trustworthiness for the foundation and effective working of informal institutions is rather undisputed. Moreover, experimental economics provides methods to measure trust and trustworthiness based on simple experimental games, for instance the so called trust game, see Glaeser et al. (2000) and Berg et al. (1993). Trust and trustworthiness measured based on the trust game approach has been used successfully as a predictor for individual financial decisions: Karlan (2005) shows that especially trustworthiness is a good predictor for repayment probabilities of borrowers in micro-credits institutions in Peru. Besides Karlan (2005), the trust game has been conducted in several field experiments in developing countries to elicit trust and trustworthiness in a number of small-scale societies, see Barr (2004), Schechter (2007), and Danielson and Holm (2007). However, in general experimental studies on trust and trustworthiness focused mainly either on western societies with effective formal institutions or on the mentioned small scale societies where social interactions are rather local; see Henrich et al. (2001). An analysis in large scale urban societies with weak formal institutions is, according to our knowledge, still missing but of relevance: Ongoing urbanization and increased rural depopulation in developing countries implies that a substantial fraction of the rural population has or will migrate from small-scale (villages) to large scale societies (cities) that are often characterized by the lack of formal institutions. This might have profound implications on the effectiveness of informal institutions or social norms that evolved in the different context of small-scale societies where social interactions were restricted to local communities. The proposed experiment will address the question of how trust and trustworthiness are affected in a large city where formal institutions are relatively weak.
2.
The City of El Alto
The experiment is planned to be run in El Alto, Bolivia, one of the fastest growing cities in South America (1.2 Mio. inhabitants in 2010), which has also one the largest poverty rates (67 % below the poverty line). The population of El Alto consists mostly of indigenous Aymara (around 70 %) which migrated to the city from impoverished rural areas or formerly stateowned mines that have been privatized and restructured. Most of the population works in the informal sector, mostly in small enterprises or as street traders.
Due to their past experience with communal self organization in rural communities or miners’ trade unions, a decentralized civic structure of informal organizations developed in El Alto, mainly organized as neighborhood committees (juntas vecinales) or specialized local trade union associations: “In El Alto, the relationship between citizens and the state is mediated by a well-established structure of collective organization that is parallel to the state and that interacts with it at multiple levels simultaneously” (Lazar 2008, p. 4). This implies that basically each inhabitant of El Alto is either a member of his local neighborhood committee or of the respective trade union associations. Locally relevant political decisions, e.g. about the installation of a sewage system or the organization of the informal markets, are made in regular meetings in which participation is mandatory for the respective members. This decentralized structure of informal decision making is also interpreted as a reflection of the indigenous tradition of the ‘ayllu’, “which in particular is associated in the popular imagination with a very strong sense of community solidarity, … focusing also on the organization of communal work practices, networks of mutual aid and reciprocity, and a sense of obligation to the community” (Lazar 2008, p. 10). However, the inhabitants of El Alto are faced at the same time with increased competitive pressure in the informal economy due to ongoing population growth and trade liberalization. As most inhabitants of El Alto are either directly, as street traders, or indirectly, as workers in the respective small-scale enterprises, dependent on the informal economy, they are immediately exposed to changes in the informal market structures. Hence, the ‘sense of community solidarity’ that is instilled by informal institutions like neighborhood committees and trade union associations is challenged at the same time by ongoing competitive pressure from the informal economy.1 Based on a survey among female street vendors in El Alto, Agadjanian (2002) concluded for instance, that “the perennial balancing act of competition and cooperation is increasingly tilted in favor of the former due to extreme overcrowding and low and unpredictable profits that characterize this market niche, combined with an increasing entrenchment of individualism and the decline of ‘common cause’ ideological paradigms and of political forms that used to sustain them.” (Agadjanian 2002, p. 281). The series of proposed experiments should evaluate to what extent and under what conditions trust and trustworthiness can be maintained under such conditions of conflicting interests between community solidarity and individuation.
3.
Experimental Design
The experimental set up will be based on variants of the trust game, as introduced by Berg et al. (1993), where an Investor is endowed with an amount X that he/she can partially invest. The invested amount IX is multiplied by a factor of 3 and transferred to a Trustee. The Trustee then decides how much of the received amount 3I will be transferred back to the Investor. If the retransferred amount by the trustee is denoted by T the following pay-off is realized: For the Investor: X-I+T For the Trustee: 3I-T In this game trust is measured by the amount I that the Investor transfers to the Trustee, while trustworthiness is measured by the amount T that is retransferred from the Trustee to the Investor. While the game-theoretical prediction based on the assumption of self-interested 1
Nevertheless, there exists some evidence that these informal organizations were highly effective in the organization of collective action in extreme political situations: In 2000 and 2003 street blockades in El Alto in combinations with mass demonstrations in La Paz led to the demission of the president of Bolivia because the neighbouring capital of La Paz was de-facto isolated from the rest of the country by these blockades.
players would be to invest zero, the efficient investment with respect to joint payoff maximization would be achieved if the whole amount is invested. Several studies among different subject pools show that roughly between 40 and 60 % of the initial amount X is invested by the Investor while between 30 and 50 % is retransferred from the Trustee to the Investor; see Camerer (2003) and the recent survey in Cardenas and Carpenter (2008). In the proposed series of experiments subjects are going to be neighbors/street traders of two districts in El Alto, named group A and B, and of one district in the neighboring capital of La Paz with similar characteristics, named group C. Hence, there are three groups of subjects that participate in informal institutions to a different extent.2 In total each subject will participate in the following 3 games. 1. 2. 3.
Risk game (RG), where the investor decides how much of his endowment is invested into a risky lottery. Trust game (TG1) between subjects from the same group. Trust game (TG2) between subjects from different groups.
The role of the Investor respective Trustee in the two trust games (TG1 and TG2) among the three groups is altered according to the following scheme:
B1 TG1 TG2
B2
A1 TG1
TG2
A2 TG2
C2 TG1
C1
Conducting these three games in the described order does not only allow to measure trust and trustworthiness among neighbors/street traders in El Alto but also to control for risk aversion and in- vs. out group-bias in the following sense: Firstly, investment behavior in the trust game is risky such that the suggestions in Schechter (2007) are followed and a simple risk game is conducted to control for risk aversion among participants. Secondly, the comparison of trust and trustworthiness between games no. 2 and 3, i.e. TG1 and TG2, allows controlling for the degree of trust and trustworthiness among subjects with different social distance on a with-in subject basis. 2
Formal institutions are comparatively well-established and functioning in the capital of La Paz, their role and importance is less significant in El Alto. As mentioned before, in El Alto they are mainly substituted by informal institutions like neighborhood committees and trade union associations.
More importantly, the fact that subjects in the two groups from El Alto are more exposed to informal institutions in comparison to the group from La Paz suggests that differences in experimental behavior among the three groups could be attributed to their difference in exposure to formal or informal institutions. Hence, the consequences of participation in informal institutions on trust and trustworthiness can be analyzed in more detail by comparing systematic differences in behavior among the three groups of subjects. Finally, an additional questionnaire will help to address the question whether other potential factors have an additional influence on trust and trustworthiness, e.g. gender, wealth, participation in other community activities, religious beliefs, etc.
4.
Literature
Agadjanian, V.: Competition and Cooperation Among Working Women in the Context of Structural Adjustment: The Case of Street Vendors in la Paz-El Alto, Bolivia: Journal of Developing Societies, 2002, 18, 259-285 Barr, A.: Kinship, Familiarity and Trust: An Experimental Investigation. In: Henrich, J.; Boyd, R.; Bowles, S.; Camerer, C.; Fehr, E. & Gintis, H. (Eds.), Foundations of Human Sociality: Experimental and Ethnographic Evidence from 15 Small Scale Societies, Oxford University Press, 2004, 305-334 Berg, J.; Dickhaut, J. & McCabe, K.: Trust, Reciprocity, and Social History, Games and Economic Behavior, 1995, 10, 122-142 Bowles, S. & Gintis, H.: Social Capital and Community Governance, Economic Journal, 2002, 112, 419-436 Calestani, M.: ‘SUERTE’ (Luck): Spirituality and Well-Being in El Alto, Bolivia, Applied Research Quality Life, 2009, 4, 47-75 Camerer, C. F.: Behavioral Game Theory, Princeton University Press, 2003 Cardenas, J. C. & Carpenter, J.: Behavioral Development Economics: Lessons from Field Labs in the Developing World, Journal of Development Studies, 2008, 44, 337-364 Danielson, A. J. & Holm, H. J.: Do you trust your brethren? Eliciting trust attitudes and trust behavior in a Tanzanian congregation, Journal of Economic Behavior and Organization, 2007, 62, 255-271 Glaeser, E. L.; Laibson, D. I.; Scheinkman, J. A. & Soutter, C. L.: Measuring Trust, Quarterly Journal of Economics, 2000, 115, 811-846 Henrich, J.; Boyd, R.; Bowles, S.; Camerer, C.; Fehr, E.; Gintis, H. & McElreath, R.: In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies, American Economic Review Papers and Proceedings, 2001, 91, 73-78 Karlan, D. S.: Using Experimental Economics to Measure Social Capital and Predict Financial Decisions, American Economic Review, 2005, 95, 1688-1699
Lazar, S.: El Alto, Rebel City: Self and Citizenship in Andean Bolivia, Duke University Press, 2008 Ostrom, E., Governing the Commons, Cambridge University Press, 1990 Schechter, L.: Traditional Trust Measurement and the Risk Confound: An Experiment in Rural Paraguay, Journal of Economic Behavior and Organization, 2007, 62, 272-292 Sobel, J.: Can We Trust Social Capital? Journal of Economic Literature, 2002, 90, 139154
