Do community-sanctioned social pressures constrain microenterprise growth? Evidence from a framed field experiment

We conduct a framed lab-in-field experiment to explore the hypothesis that a number of stylized facts about microenterprise behaviour in developing countries - including product market homogeneity and lack of growth and innovation - can be explained by a social institution in which microentrepreneurs share the market to "buy a job." 280 present or prospective market trader women across four communities in rural Vietnam are anonymously randomized into pairs to play three "market game" treatments. The interactions are framed to simulate real-world retail market competition. The participants compete in an effort task, with performance determining market returns. A highly incentivized individual round allows us to extract a measure of individual "ability" in the effort task. The subjects then compete in successive treatments, where in the final treatment the losing participant in a round can elect to "burn" their competitor's output, which is framed as the application of social pressure. The behavioural responses are significant and fitting with a theoretical model of the social institution we have in mind: even though subjects are from the same community they are willing to punish ("apply social pressure"), the probability of punishment is increasing in the gap in ability in the pair, and this leads to a decrease in performance from higher-ability individuals. The study provides an example of the use of framed lab experiments to shed light on market behaviour in developing countries, for which full-blown RCTs may face serious feasibility or ethical challenges. School of Economics, The University of Sydney, Australia. (C) 2013 Elsevier Inc. All rights reserved.