Firm Decisions Under Weak Rule of Law: Experimental Evidence from Senegal

• In Event: Corruption and Elite Capture in Sub-Saharan Africa

Abstract

In African states where contracting is often insecure or a function of personal and political influence, who makes a reliable business partner? To test the relative importance of the formal and informal political motivations of trade, I conducted a survey and embedded conjoint experiment with 2,400 firm managers in Senegal, ranging from individually operated enterprises to large multinational corporations, in both the formal and informal sectors. Results show that firm owners avoid deals with partners that have low- or mid-tier political connections, but seek deals with partners possessing the highest level of political connections, despite believing they are most likely to defect. These political considerations are just as powerful as social enforcement factors in explaining firm owners’ decisions to contract. These findings suggest that political connections prevent a significant amount of trade from occurring, thus compounding private-sector inefficiencies in states with weak rule of law.

Author

• Abhit Bhandari, Columbia University