PROMISE KEEPING, RELATIONAL CLOSENESS, AND IDENTIFIABILITY: AN EXPERIMENTAL INVESTIGATION IN CHINA

We experimentally investigate a new variant of the trust/investment game that captures some key features of internet peer-to-peer (P2P) lending: the borrower specifies the amount of money required and makes a contingent promise about the value of the generally higher repayment prior to the investor’s decision to lend the required sum or not. We examine the role played by two factors related to traditional Chinese culture and ethics: whether (i) relational closeness between the actors and (ii) the ability of the actors to observe each other’s identity after the repayment decision (identifiability) affect the borrowers’ decisions to make the promised repayments and ultimately the consequent aggregate realized social benefits. Using a two-by-two factorial design, we conduct four treatments in China where these factors are hypothesized to be especially salient, and also perform the identifiability treatment in New Zealand as a cultural control. We find that in China both manipulations are positively and significantly related to the probability of a repayment promise being kept. Moreover, these two factors are substitutes for each other. In New Zealand, there was no significant identifiability effect on promise keeping. The effectiveness of identifiability in China but not in New Zealand resulted in a significantly higher proportion of promises being kept when agents were identifiable in China than in New Zealand. Over time, relational closeness and identifiability both led investors in China to accept more proposals, resulting in more investment and the creation of greater social surplus.