nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2012‒10‒06
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Wages and Informality in Developing Countries By Costas Meghir; Renata Narita; Jean-Marc Robin
  2. Informal wages in an economy with active labor courts By Araujo, Luis; Ponczek, Vladimir P.
  3. Unionization and Informal Economy By Ceyhun Elgin
  4. 150 years of Italian political unity and economic dualism: An Introduction By Michele Fratianni
  5. The Cake-eating problem: Non-linear sharing rules By Eugenio Peluso; Alain Trannoy
  6. In search of lost capital: an estimation of undeclared portfolio assets By Valeria Pellegrini; Enrico Tosti
  7. Coordination Incentives in Cross-Border Macroprudential Regulation By Alexis Derviz; Jakub Seidler
  8. The Business of Pirate Protection By Anja Shortland; Federico Varese
  9. Human Trafficking, a Shadow of Migration: Evidence from Germany By Seo-Young Cho

  1. By: Costas Meghir (Economics Department, Yale University); Renata Narita (World Bank); Jean-Marc Robin (Sciences Po)
    Abstract: It is often argued that informal labor markets in developing countries promote growth by reducing the impact of regulation. On the other hand informality may reduce the amount of social protection offered to workers. We extend the wage-posting framework of Burdett and Mortensen (1998) to allow heterogeneous firms to decide whether to locate in the formal or the informal sector, as well as set wages. Workers engage in both off the job and on the job search. We estimate the model using Brazilian micro data and evaluate the labor market and welfare effects of policies towards informality.
    Keywords: entrepreneurship; credit constraints; business training; consulting; managerial capital
    JEL: J24 J3 J42 J6 O17
    Date: 2012–09
  2. By: Araujo, Luis; Ponczek, Vladimir P.
    Abstract: In most developing countries, job regulations and the justice branch interfere on several aspects of labor contracts. Inspired by this fact, we build a model that explores the role of labor courts in the determination of the di¤erence between formal and informal wages. We show that the presence of active labor courts in an environment where labor relations are subject to asymmetries of information reproduces features documented by the empirical literature. The main implications of our model are tested using Brazilian data.
    Date: 2012–09–12
  3. By: Ceyhun Elgin
    Date: 2012–11
  4. By: Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche and MoFiR)
    Abstract: This Special Issue of Rivista Italiana degli Economisti celebrates the 150th anniversary of Italy's political unity. Since 1861, Italy has evolved from a poor, backward and agrarian economy to a rich and industrial economy; has gone though bouts of economic insularity and integration; has swung from massive emigration to large immigration has experienced an inflation rate much higher than that of the reference industrial countries; has accumulated a debilitating public debt; and has blessed the demise of the lira to embrace a new currency, the euro, which now is under threat of imploding. Amidst all these changes, two features have endured: political unity and a deep economic divide between the North and the South.
    Keywords: debt, economic dualism, economic growth, inflation
    JEL: E31 N13 N14 O40
    Date: 2012–09
  5. By: Eugenio Peluso (Department of Economics (University of Verona)); Alain Trannoy (EHESS, GREQAM-IDEP, Marseille)
    Abstract: Consider the most simple problem in microeconomics, a maximization problem with an additive separable utility function over bundles of two goods which provide equal sat- isfaction to an agent. Although simple, this framework allows for a very wide range of applications, from the Arrow-Debreu contingent claims case to the risk-sharing problem, including standard portfolio choice, intertemporal individual consumption, demand for in- surance and tax evasion. We show that any Engel curve can be generated through such a simple program and the necessary and suffi cient restrictions on the demand system to be the outcome of such a maximisation process. Moreover, we identify three classes of utility function that generate non-linear sharing rules. The gap between the two expen- diture shares increases in absolute, average or marginal terms with the total amount of wealth, depending on whether DARA, DRRA and convex risk tolerance are considered. The extension of the different results to the case of more than two goods is provided.
    Keywords: Cake-eating problem; sharing rules; concavity; convex risk tolerance
    JEL: D11 D81 D90 G12
    Date: 2012–09
  6. By: Valeria Pellegrini (Bank of Italy); Enrico Tosti (Bank of Italy)
    Abstract: The analyses of the international investment position and balance of payments statistics suggest that foreign assets held abroad are greatly underestimated, in particular in the sector of portfolio investments. The aim of this work is to test this hypothesis and to estimate the magnitude of under-reported assets. The approach is based on the comparison of mirror statistics on portfolio assets and liabilities, mainly using data coming from the Coordinated Portfolio Investment Survey (CPIS) conducted by the IMF, with the addition of information derived from several international databases. For the years from 2001 to 2010 the global discrepancy is estimated to be equal to 7.3% of world GDP on average. Different criteria have been adopted to attribute the share of the estimated under-reporting, particularly significant in the case of mutual funds issued by Luxembourg and the main off-shore centres, to the main euro area countries. Results vary from 6 to 10 per cent of national GDPs. If these amounts were added to national data, statistical consistency in international statistics would improve.
    Keywords: international investment position, portfolio securities, under-reporting
    JEL: F32 F21
    Date: 2012–09
  7. By: Alexis Derviz (Czech National Bank); Jakub Seidler (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: We discuss (dis)incentives for fair cooperation related to delegating macroprudential policy decisions to a supranational body, as well as their welfare implications. The question is studied by means of a signaling game of imperfect information between two national regulators. The model concentrates on informational frictions in an environment with otherwise fully aligned preferences. We show that even in the absence of evident conflicting goals, the non-transferrable nature of some regulatory information creates misreporting incentives. However, the major problem is not the reporting accuracy but the institutional arrangement focused on maximal multilateral satisfaction to the detriment of credible enforcement of rules. The main application is meant to be systemic risk management by the relevant EU institutions.
    Keywords: macroprudential regulation, integration, autonomy, information, reporting
    JEL: F55 H77 D02 C72 D83
    Date: 2012–07
  8. By: Anja Shortland; Federico Varese
    Abstract: Somali piracy is often described as a form of organized crime, with pirates providing their own security. Such an approach fails to distinguish between different actors within modern piracy and leads to policies focusing on deterring pirate recruits. Drawing on Protection Theory developed for the study of Mafias, a detailed analysis of Bloomberg maps of hijacked vessels' routes, field interviews and Somali press reports, we show that there is instead a clear distinction between protectors of piracy and pirates. Clan elders and their militias facilitate piracy, because they protect hijacked ships in their anchorages and have well-established channels for coordinating actions where business interests cut across clan lines. This explains the relative stability and order within the piracy business, such as the lack of re-hijacking. The paper concludes by arguing that the solution to piracy needs to focus on the enablers rather than the executors of the crime, and should be at the sub-state, clan level.
    Date: 2012
  9. By: Seo-Young Cho
    Abstract: This paper empirically analyzes the causal relationship between migration and human trafficking inflows into Germany during the period between 2001 and 2010. My results suggest that migrant networks, measured by migrant stocks from a specific source country, increase the illicit, exploitative form of migration - human trafficking - from that respective country. However, the network effect varies across different income levels of source countries. The significant, positive effect of migrant networks decreases as the income level increases, and furthermore the effect is insignificant for high income countries.
    Keywords: Human trafficking, Migration, Network effects
    JEL: F22 J23 J61
    Date: 2012

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