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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.

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Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number 03-05e.

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Length: 67 pages
Date of creation: 01 Jul 2003
Date of revision:
Handle: RePEc:eer:wpalle:03-05e
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  1. Ernst Fehr & Simon Gaechter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," CESifo Working Paper Series 336, CESifo Group Munich.
  2. Jean Tirole, 1996. "A Theory of Collective Reputations (with applications to the persistence of corruption and to firm quality)," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 1-22.
  3. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
  4. Michihiro Kandori, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 63-80.
  5. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May.
  6. A. Mitchell Polinsky & Steven Shavell, 1999. "The Economic Theory of Public Enforcement of Law," NBER Working Papers 6993, National Bureau of Economic Research, Inc.
  7. Rubinstein, Ariel, 1979. "Equilibrium in supergames with the overtaking criterion," Journal of Economic Theory, Elsevier, vol. 21(1), pages 1-9, August.
  8. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
  9. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, December.
  10. Kronman, Anthony T, 1985. "Contract Law and the State of Nature," Journal of Law, Economics and Organization, Oxford University Press, vol. 1(1), pages 5-32, Spring.
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