Media Briefings

WITH A LITTLE HELP FROM MY FRIENDS? New evidence on social links and economic outcomes

  • Published Date: September 2014

How should researchers investigate the true role of people’s self-reported social links in getting a job, getting a favour or simply getting information? A new study by Margherita Comola and Marcel Fafchamps, published in the September 2014 issue of the Economic Journal, analyses the impact of social links on economic outcomes using data from a Tanzanian village and the Indian state of Maharashtra.

But they begin with a thought experiment from the university classroom: imagine asking students ‘Whom do you ask when you have a question about mathematics?’ – and it turns out that students who mention talking to the lecturer get higher marks. Is it right to conclude that talking to the lecturer helps their mathematics score?

In most universities, lecturers are required to have office hours. Given that students have equal access to lecturers, poor exam performance cannot, by design, be ‘caused’ by lack of lecturer contact since it is endogenous. Correlation between student marks and lecturer contact may nevertheless suggest that talking to the lecturer helps those students who take advantage of it.

The situation is different if the lecturer has discretion about which students to help. Here, contact with the lecturer may have a causal effect on student performance: had the lecturer refused to see a student, he or she would have performed worse.

The first case corresponds to what the researchers call ‘unilateral link formation’: one party can unilaterally initiate contact. The second corresponds to ‘bilateral link formation’: both parties must agree to initiate a link. As the example illustrates, whether link formation is unilateral or bilateral affects whether social contact has a causal effect on the outcomes of interest or not.

It is also conceivable that answers to the question about whom students go to for help do not actually measure social links. Imagine no student has seen the lecturer but better students list the lecturer, knowing they would ask the lecturer if they had a question. That would mean there is a correlation between listing the lecturer and exam performance even though there was no direct social contact.

The new study proposes a testing methodology to shed light on the interpretation of self-reported link data in relation to the two key issues: are survey respondents listing actual links? And are links formed in a bilateral or unilateral manner?

The authors illustrate their methodology with two separate observational datasets:

Risk-sharing in Tanzania

The first illustration focuses on informal risk-sharing in a Tanzanian village, where respondents were asked to enumerate all their risk-sharing partners. Previous research has been uncertain as to whether risk-sharing links should be seen as implicit contracts grounded in mutual self-interest, or whether social norms impose an element of moral or social pressure that makes it difficult for households to refuse to help (or be helped by) others.

The researchers find that the ‘desire-to-link’ model best fits the data: respondents list households with whom it is in their objective interest to link, whether or not such a link exists. This makes sense if others cannot refuse to help.

Farmers in Maharashtra

The second illustration uses survey data from farmers in the Indian state of Maharashtra. The researchers find that survey responses are best interpreted as existing links and that the unilateral link formation model fits the data better than the bilateral model.

This suggests that less experienced farmers can secure information about farming practices from more knowledgeable neighbours even though the latter have little to gain objectively from agricultural information exchange.

This opens interesting opportunities from a policy intervention perspective – for example, targeting extension services to more knowledgeable farmers who are better able to absorb and subsequently disseminate information about new technology.

ENDS

Notes for editors: ‘Testing Unilateral and Bilateral Link Formation’ by Margherita Comola and Marcel Fafchamps is published in the September 2014 issue of the Economic Journal.

Margherita Comola is at the Paris School of Economics. Marcel Fafchamps is at Stanford University.

For further information: contact Marcel Fafchamps via email: fafchamp@stanford.edu; or Romesh Vaitilingam on +44-7768-661095 (email: romesh@vaitilingam.com; Twitter: @econromesh).