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Informal Contracts in Transition Economies: A Dynamic Approach


  • Ingster Anna



In a transition economy, many of employee/employer's contracts are informal, rather than formal. Even in cases when formal contracts concluded, external legal enforcement of a contract often appears to be imperfect and costly. Sometimes, this brings to the employer the opportunity to 'deceive' the employee, paying him a lower salary than he had expected ex-ante. Underdevelopment of the judiciary system and weak enforcement of courts decisions make this problem more serious, and at the same time more difficult to resolve. The current paper provides a positive model of deception at labor markets.

Suggested Citation

  • Ingster Anna, 2003. "Informal Contracts in Transition Economies: A Dynamic Approach," EERC Working Paper Series 03-05e, EERC Research Network, Russia and CIS.
  • Handle: RePEc:eer:wpalle:03-05e

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    References listed on IDEAS

    1. Ernst Fehr & Simon Gächter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 159-181, Summer.
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    5. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, June.
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    7. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
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    9. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
    10. Michihiro Kandori, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 63-80.
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    Cited by:

    1. Maxim Bouev, 2005. "State Regulations, Job Search and Wage Bargaining: A Study in the Economics of the Informal Sector," William Davidson Institute Working Papers Series wp764, William Davidson Institute at the University of Michigan.
    2. Olivia Anku-Tsede, 2014. "Maintaining Order in the Microfinance Sector in Ghana," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(3), pages 387-403, March.

    More about this item


    Russia; informal contracts; deception; imperfect enforcement; transition;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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