Theft, Gift-Giving, and Trustworthiness: Honesty Is Its Own Reward in Rural Paraguay

Laura Schechter

American Economic Review, 2007, vol. 97, issue 5, pages 1560-1582

Abstract: In developing countries lacking legal enforcement, villagers may use implicit contracts to minimize crime. I construct a dynamic limited-commitment model, in which a thief cannot commit to forego stealing, but is induced to steal less by the promise of future gifts. Combining survey data on production, theft, gifts, and trust with experiments measuring trustworthiness, I provide supporting evidence. Farmers living near more relatives or with plots that are difficult to steal from give fewer gifts and trust more, and those living near more relatives also experience less theft. Giving increases when trust is lower and the threat of theft is greater. (JEL D86, K42, O17, Z13)

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