nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2012‒02‒27
ten papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Cyclicality of the Informal Economy By Ceyhun Elgin
  2. A Matching Model of Endogenous Growth and Underground Firms By Gaetano Lisi; Maurizio Pugno
  3. Does tax evasion affect firms’ internal control? Some evidence from an experimental approach By Lory Barile
  4. The Crime of Tax Evasion in Transition Economies By Barbara G. Katz; Joel Owen
  5. A tale of two species : revisiting the effect of registration reform on informal business owners in Mexico By Bruhn, Miriam
  6. Le Trueque argentin au prisme de la dette : une socioéconomie des pratiques monétaires et financières. By Saiag, Hadrien
  7. The dynamics of inequality change in a highly dualistic economy: Honduras, 1991-2007 By Stephan Klasen; Thomas Otter; Carlos Villalobos
  8. Human Smuggling By Friebel, Guido; Guriev, Sergei
  9. Regulating Prostitution: Theory and Evidence from Italy By Giovanni Immordino; Francesco Flaviano Russo
  10. Competition and Illicit Quality By Victor Manuel Bennett; Lamar Pierce; Jason A. Snyder; Michael W. Toffel

  1. By: Ceyhun Elgin
    Date: 2012–02
  2. By: Gaetano Lisi; Maurizio Pugno
    Abstract: A matching model will explain both unemployment and economic growth by considering the underground sector and human capital. Three problems can thus be simultaneously accounted for: (i) the persistence of the underground sector, (ii) the ambiguous relationships between underground employment and unemployment, and (iii) between growth and unemployment. Key assumptions are that entrepreneurial ability is heterogeneous, skill accumulation determines productivity growth, job-seekers choose whether to invest in education. The conclusions are that the least able entrepreneurs, whose number is endogenous, set up underground firms, employ unskilled labour, and do not contribute to growth. If the monitoring rate is sufficiently low, underground employment alleviates unemployment, but the economy grows at lower rates.
    Keywords: Matching models, endogenous growth, underground economy, entrepreneurship, unemployment.
    JEL: E26 J6 J24 L26
    Date: 2012–01–03
  3. By: Lory Barile
    Abstract: The aim of this work is to analyze tax evasion as a factor that potentially affects internal control of firms as an application of the Chen and Chu’s model (2005). For this purpose an experimental approach was employed. Treatments varied depending on whether agents were assumed to be risk-neutral or risk-averse. According to the gift-exchange game (Fehr et al., 1993), results show a positive relationship between wages offered by principal and efforts provided by agents. In general, higher wages lead to more costly effort provision. However, when evasion and risk aversion are introduced in the analysis individuals show opportunistic behaviors and they seem to be less willing to cooperate for the wealth of the firm.
    Keywords: tax evasion, firms, reciprocity, labor market.
    JEL: C90 C91 H26
    Date: 2012–02
  4. By: Barbara G. Katz; Joel Owen
    Date: 2011
  5. By: Bruhn, Miriam
    Abstract: Different views have been put forward to explain why most firms in developing countries operate informally. One view argues that informal-business owners are entrepreneurs who do not register their firm because the regulation process is too complex. Another argues that informal-business owners are people trying to make a living while searching for a wage job. This paper contributes to recent literature that argues that both factors are at work. The author uses discriminant analysis to separate informal business owners into two groups: those with personal characteristics similar to wage workers, and those with traits similar to formal-business owners. The paper then examines how the two groups were affected by a business registration reform in Mexico. Informal-business owners from the second group were more likely to register their business after the reform. By contrast, informal-business owners from the first group were less likely to register but more likely to become wage workers after the reform. This is consistent with the finding in Bruhn (2008 and 2011) that the reform led to job creation. It also explains why the earlier papers find that the reform didn’t affect the number of new registrations by all informal business owners.
    Keywords: Competitiveness and Competition Policy,Business in Development,Business Environment,E-Business,Access to Finance
    Date: 2012–02–01
  6. By: Saiag, Hadrien
    Abstract: Cette thèse prolonge les réflexions des économistes institutionnalistes quant à la nature de la monnaie à partir de l’étude d’un ensemble de systèmes monétaires locaux en Argentine (trueque). Pour ce faire, elle prend appui sur une reconstitution de l’histoire des principaux réseaux de trueque d’ampleur nationale (niveau méso) ainsi que sur des observations de pratiques monétaires et financières de leurs participants, issues d’une enquête de terrain de type ethnographique (niveau micro). Ces données soulignent que la monnaie doit être appréhendée comme un système d’évaluation et de règlement des dettes. Une telle approche permet d’abord de distinguer les pratiques monétaires des pratiques financières et de préciser leurs interdépendances. Elle insiste également sur la diversité des pratiques monétaires (supports matériels des moyens de paiement et évaluation des dettes) et des modalités d’émission des moyens de paiement. Ce faisant, la monnaie est à même de participer à la reproduction d’organisations territoriales plus ou moins centralisées et de rapports sociaux très contrastés (tantôt violents, tantôt émancipateurs). Enfin, concevoir la monnaie à partir de la dette pose la question de l’accès aux moyens de paiement de la part de ceux qui ont été relayés aux marges du salariat à travers l’expansion de l’économie dite « informelle ».
    Abstract: This work questions the nature of money through the analysis of a complex set of local monetary systems located in Argentina (trueque). It is based on both the reconstitution of the history of the main national trueque networks (meso-level) and the observation of the monetary and financial practices of their participants, carried out through an ethnographic fieldwork (micro-level). These data suggest that money must be understood as a system of evaluation and settlement of debts. Such approach allows first to distinguish financial from monetary practices and to clarify their interdependences. Second, it puts the emphasis on the wide diversity of monetary practices (i.e. the material media of the means of settlement and evaluation of debts) and modalities of issuing the means of settlement. Therefore, money can participate to the reproduction of special organizations more or less centralized and to widely contrasted social relations (either violent or emancipating). Finally, to conceive money from debt begs the question of the access to the means of settlement of those who have been excluded from the fordist wage-labor nexus through the expansion of the so-called “informal economy.
    Keywords: Argentina; debt; federalism; informal economy; money trueque; Argentine; dette; économie informelle; fédéralisme; finance; monnaie; trueque;
    JEL: A14 H11 H63 E26 E42
    Date: 2011–12
  7. By: Stephan Klasen (University ot Goettingen / Germany); Thomas Otter; Carlos Villalobos (University of Goettingen / Germany)
    Abstract: We examine the drivers of inequality change in Honduras between 1991-2007, trying to understand why inequality increased in Honduras until 2005, while it was falling in most other Latin American countries. Using annual household surveys, we document first rising inequality between 1991-2005, which is followed by falling inequality thereafter. Using an inequality decomposition technique, we show that the rising inequality between 1991 and 2005 was, for the most part, driven by the dispersion of labour incomes in rural areas. We also show that the extraordinary labour earnings disequalization is mainly the result of a widening wage gap between the tradable and non-tradable sectors and occupations, combined with highly segmented labor markets and poor overall educational progress. The underlying determinants of the divergence between tradable and non-tradable sectors were highly overvalued currencies and poor commodity process for Honduras’ agricultural exports. Between 2005 and 2007, however, the inequality reduction was a result of equalizing trends in labour and non-labour incomes. The commodity boom promoting the tradable sector and remittances (in this order) played a significant role here, with government transfers playing a small supporting role. Since the decline in inequality is largely driven by international factors, we cannot be sure whether the decline in inequality will continue.
    Keywords: Inequality, Decomposition, Education, Wages, Honduras, Migration
    JEL: C15 D31 I21 J23 J31 R23 J31 J61
    Date: 2012–02–17
  8. By: Friebel, Guido (Goethe University Frankfurt); Guriev, Sergei (CEFIR, New Economic School, Moscow)
    Abstract: Despite its importance in global illegal migration, there is little, and mostly theoretical research on human smuggling. We suggest an analytical framework to understand the micro structure of the human smuggling market. Migrants interact with smuggling and financing intermediaries; these may or may not be integrated with each other, and with the migrants' employers. Policies of receiving countries (border controls, employer sanctions, deportation policies, sales of visa) affect the interactions in the smuggling market, and, hence, migration flows. We review the theoretical work, point to the scarce empirical evidence, and identify challenges for future theoretical, empirical work and policy advice.
    Keywords: illegal migration, trafficking
    JEL: J15 J61
    Date: 2012–02
  9. By: Giovanni Immordino (Università di Salerno and CSEF); Francesco Flaviano Russo (University of Naples "Federico II" and CSEF)
    Abstract: We set up an equilibrium model of prostitution where potential clients and sex workers simultaneously choose whether to demand and supply sex under three different legal regimes: prohibition, regulation and laissez-faire. We then calibrate the model to match some key facts about the prostitution market in Italy and we compare the effect of alternative policies on the total quantity of prostitution exchanged in equilibrium and on the harm associated to it. The main findings are: (i) The best prohibition regime is one where it is illegal to buy but not to sell sex. (ii) Public health policies that reduce the risk of contracting a Sexually Transmittable Disease increase the quantity and, for a small reduction of the infection probability, also the harm. However, asymmetric prevention policies that reduce the risk of contagion only for sex workers reduce harm at a small cost in terms of increased total quantity. (iii) While regulation is preferable to minimize the harm, prohibition is best if the social goal is to minimize the quantity.
    Keywords: Prostitution, Regulation, Prohibition, Lasseiz-faire.
    JEL: L51 I18 O17 H21
    Date: 2012–02–20
  10. By: Victor Manuel Bennett (USC Marshall School of Business); Lamar Pierce (Washington University in St. Louis); Jason A. Snyder (Anderson School of Management, University of California at Los Angeles); Michael W. Toffel (Harvard Business School, Technology and Operations Management Unit)
    Abstract: Competition among firms can have many positive outcomes, including decreased prices and improved quality. Yet competition can have a darker side when firms can gain competitive advantage through illicit and corrupt activities. In this paper, we argue that competition can lead organizations to provide illicit quality that satisfies customer demand but violates laws and regulations and that this outcome is particularly likely when price competition is restricted. Using 28 million vehicle emissions tests from more than 11,000 facilities, we show that increased competition is associated with greater inspection leniency, a form of illicit quality that customers value but is illegal and socially costly. Firms with greater numbers of local competitors pass customers at considerably higher rates and are more likely to lose customers they fail to pass, suggesting that the alternatives that competition provides to customers intensify pressure to illegally provide leniency. We also show that, at least in contexts when pricing is restricted, firms use illicit quality as an entry strategy.
    Date: 2012–02

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