Kinship Referral Distortion in Risk-Sharing Networks
RCTReview
In developing economies, informal social networks are primarily structured for mutual insurance and risk-sharing rather than labor market efficiency. Strong community norms pressure workers to channel valuable employment referrals to poorly-qualified relatives instead of highly-qualified external contacts.
Picture this
Imagine a family pool where members share food and money during hard times. When a member gets a free ticket to a job, family pressure compels them to give the ticket to a struggling brother to keep resources inside the family circle, even if a distant acquaintance would do the job much better.
What the evidence says
Under flat referral pay structures, referrers systematically prioritized family and relatives over skilled non-relatives; introducing high performance pay offset these social network pressures by reducing relative referrals by 7 percentage points.
- Who was studied
- 562 original participants and 407 referrals (adult male job seekers in informal labor markets) in Kolkata, India.
- How
- Controlled laboratory experiment soliciting referrals for cognitive and effort tasks across fixed payment versus performance payment contract structures.
What to do
Implement performance-indexed referral payouts when hiring in markets with strong risk-sharing social networks to counteract social norms that encourage nepotistic candidate selection.
From the source
"For example, there may be social norms within a network that encourage an employee to refer a poorly-qualified relative rather than the person they believe to be most qualified for the job."
Leveraging Social Networks for Job Referrals in India.pdf