Opportunism and Social Ties in the Informal Labor Market: Evidence from Freelance Contracting on the Internet

• In Event: 355 - Section on Economic Sociology Roundtable Session (one-hour).
  In Refereed Roundtable: Table 04. Labor Market Processes

Abstract

This study addresses the problem of opportunism in economic exchange by exploring the case of freelance contracting on the Internet. Based on a sample of 5,784 Russian-speaking respondents, the study provides rare quantitative evidence of the informal labor market where freelancers act under a constant threat of malfeasance by clients. We investigate how particular conditions of transactions, such as formalization of agreements, social embeddedness, and virtualization of communications, affect the extent of opportunism and further possibilities for resolving problems. The logistic regression models reveal that formalization does not reduce opportunism although written contracts help to resolve conflicts. Social embeddedness as measured by job finding method has mixed effect, illuminating the “paradox of embeddedness”. Regular clients and referrals decrease extreme opportunism, which causes direct financial losses, and enable joint problem solving. However, established social relations facilitate weak forms of opportunism such as payment delays, revealing the dark side of embeddedness. The virtualization of communications has an overall negative effect increasing opportunism and the probability that problems remain unresolved. Thus, our findings provide additional evidence of the importance of social relations and face-to-face communications in economic life.

Authors

• Denis Strebkov, National Research University

• Andrey Shevchuk, National Research University Higher School of Economics