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Schechter, L. (2007). Theft, Gift-Giving, and Trustworthiness: Honesty is Its Own Reward in Rural Paraguay. American Economic Review, 97(5): 1560-1582

Rural areas of developing countries often lack e®ective legal enforcement. However, villagers who know each other well and interact repeatedly may use implicit contracts to minimize crime. I construct a dynamic limited-commitment model, in which a thief cannot credibly commit to forego stealing from his fellow villagers, but may be induced to limit his stealing by the promise of future gifts from his potential victim. Using a unique survey from rural Paraguay which combines traditional data on production with information on theft, gifts, and trust, as well as with experiments measuring risk aversion and trustworthiness, I test whether the data is consistent with predictions from the dynamic model. The results provide evidence that farmers do implicitly contract with one another to limit theft. Farmers who have more close family members in their village give fewer gifts, and farmers with plots which are more di±cult to steal from give fewer gifts and experience less theft. Both of these categories of farmer also trust more, relative to other farmers within their village. Giving increases when trust is lower and the threat of theft is greater.


Schechter, Laura

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