On the Determinants and Consequences of Informal Contracting
58 Pages Posted: 6 Feb 2015 Last revised: 10 Feb 2015
Date Written: February 4, 2015
As documented by Macauley (1963) and others, informal contracts are pervasive in modern economies. Yet, systematic empirical evidence on them is still limited. In this paper, we provide a framework to investigate the determinants and consequences of informal contracts. First, we present a model that organizes key predictions from the theoretical literature. Next, we discuss selected empirical works that shed light on the model’s empirical relevance. Finally, we discuss strategies for testing theoretical predictions for which conclusive evidence is still missing, as well as unexplored research opportunities offered by available studies and data.
Keywords: Contracts, Enforcement, Empirical evidence, Testability
JEL Classification: D23, L24, M21
Suggested Citation: Suggested Citation