Trust and Social Control: Sources of Cooperation, Performance, and Stability in Informal Value Transfer Systems

Abstract

We study the functioning of informal value transfer systems through the example of Hawala. By complementing the institutional theory with computational experiments that use the first agent-based model of IVTS, we examine the roles of generalized trust and social control for the emergence, stability, and efficiency of Hawala. We show that both trust and control are necessary, but not sufficient to guarantee its functioning, and that their relationship is time-dependent. The success of Hawala also depends on population size, interaction density, and forgiveness of the agents. Finally, we provide a theoretically grounded operationalization of generalized trust and social control that is applicable to informal exchange systems in general.