• Rajkamal Iyer, Antoinette Schoar

This paper explores the importance of culture in determining contractual outcomes. We set up a field experiment in India where we send shoppers from different communities to contract with wholesalers (who also belong to different communities) in the pen industry. We find that entrepreneurs from different communities vary in how they conduct business and negotiate contracts. Wholesalers from the Marwari community, who are considered the most entrepreneurial community in India, offer lower prices and smaller upfront payment than wholesalers from other communities. We also find that prices are lower when there is a community match between the shopper and wholesaler. But there is no difference on the level of upfront payment. Our results suggest that culture is an important factor in explaining differences in contract negotiations.

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