Trust and Social Networks

Markets and social networks are sometimes portrayed as entirely distinct mechanisms for exchanging goods and services, but a rich social network is a valuable asset that can be used within markets to gain access to scarce resources from individuals who prefer to trade with those they know and trust.

Economists Dean Karlan, Markus Mobius, and Tanya Rosenblat will attempt to quantify the value of social networks with a study in a shantytown outside Lima, Peru. The researchers will use surveys to measure the social relationships of the town residents and then randomly select a small group of them to receive usage rights for a set of power tools, which are scarce and valuable in this area, where residents must build their own shelter. Those given rights to the tools will be able to loan them to others, but must take responsibility for the condition in which they are returned. Karlan, Mobius, and Rosenblat will track who loans the tools to whom, and will also make the tools available for rent in a town store. Once the market rental price for the tools is established, the researchers will be able to measure the value of having a network from which one can access this valuable commodity.