In developing economies, commercial transactions frequently occur within the informal economy, with often surprising degrees of contractual complexity. By its nonlegal nature, informal contracts will rarely be enforced by Law, and hence contacts depend on inter-personal trust between contracting agents. Interpersonal trust can stem from different sources: education, culture, history, etc. We posit that interpersonal trust, mostly in what relates to commerce, depends on institutions, and that unofficial institutions regulating informal markets, such as merchant’s associations, can be a source of trust. In context of extreme degrees of informality in the economy, and of weak official institutions, such as in Bolivia, inter-personal trust might emanate more form unofficial than from official sources.
This experiment intends to measure interpersonal trust based upon Berg’s experiment (1995), in which the game is slightly modified by allowing trustors to object the result of the game by appealing to and arbitrage institution. The arbitrage institution is randomly allocated to the players as an official institution (a court of justice) or an unofficial one (a merchants’ association). We hypothesize that in the Bolivian context, unofficial institutions are more conductive to improved levels of interpersonal trust.