nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2013‒05‒19
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Tax evasion,tax corruption and stochastic growth By Fred Celimene; Gilles Dufrenot; Gisele Mophou; Gaston N'Guerekata
  2. “Double Penalty in Returns to Education: Informality and Educational Mismatch in the Colombian Labour market” By Paula Herrera; Enrique López-Bazo; Elisabet Motellón
  3. Agent Intermediated Lending: A New Approach to Microfinance By Pushkar Maitra; Sandip Mitra; Dilip Mookherjee; Alberto Motta; Sujata Visaria
  4. The design and implementation of public pension systems in developing countries: Issues and options By David E. Bloom; Roddy McKinnon
  5. Pricing information goods with piracy and heterogeneous consumers By Waters, James

  1. By: Fred Celimene (CEREGMIA, Université des Antilles et de la Guyane); Gilles Dufrenot (Aix-Marseille Université); Gisele Mophou (CEREGMIA, Université des Antilles et de la Guyane); Gaston N'Guerekata (Morgan State University, Baltimore, MD, USA)
    Abstract: This paper presents a continuous time stochastic growth model to study the effects of tax evasion and tax corruption on the level and volatility of private investment and public spending. Our results suggest that there do exist several regimes of mean growth and growth volatility, depending upon the consumer's degree of risk aversion, the tax income yield, the risk-adjusted return of the agent's portfolio, the productivity of public spending. We find that public spending is described asymptotically by an incomplete upper Gamma distribution, while private capital is described by a power law distribution. Depending upon the values of the parameters of these distributions, growth can be characterized by extreme values (high volatility) when the return to taxation lies under a certain threshold and/or when the risk-adjusted return of investing the proceeds of illegal activities evolves above a given threshold. We provide an empirical illustration of the model.
    Date: 2013–02
  2. By: Paula Herrera (Faculty of Economics, University of Barcelona); Enrique López-Bazo (Faculty of Economics, University of Barcelona); Elisabet Motellón (Faculty of Economics, University of Barcelona)
    Abstract: This paper examines the returns to education taking into consideration the existence of educational mismatches in the formal and informal employment of a developing country. Results show that the returns of surplus, required and deficit years of schooling are different in the two sectors. Moreover, they suggest that these returns vary along the wage distribution, and that the pattern of variation differs for formal and informal workers. In particular, informal workers face not only lower returns to their education, but suffer a second penalty associated with educational mismatches that puts them at a greater disadvantage compare to their formal counterparts.
    Keywords: Educational Mismatch; Formal/Informal Employment; Economic Development; Wage Gap. JEL classification: O17; J21; J24.
    Date: 2013–05
  3. By: Pushkar Maitra; Sandip Mitra; Dilip Mookherjee; Alberto Motta; Sujata Visaria
    Abstract: We study trader agent intermediated lending (TRAIL), a new version of microfinance where local intermediaries (lenders) are appointed as agents to recommend borrowers for individual liability loans designed to allow the financing of agricultural operations. The scheme involves no peer monitoring, group meetings or savings requirements. In a randomized evaluation conducted in West Bengal, India, TRAIL loans have higher take-up rates and higher repayment rates than traditional group-based joint liability loans. This can be explained by a model of segmented informal credit markets with adverse selection, in which repayment-based commissions deter collusion and motivate agents to recommend low-risk borrowers.
    Keywords: Microfinance, Agent Based Lending, Group Lending, Selection, Takeup, Repayment
    JEL: D82 O16
    Date: 2013–05
  4. By: David E. Bloom (Harvard School of Public Health); Roddy McKinnon (International Social Security Association)
    Abstract: Developing countries are increasingly aware of the need to design and implement improvements in public systems for providing pensions to the elderly. Such systems may aim to smooth consumption and thus provide reliable income to older people, reduce poverty among the elderly, insure those no longer working against the risk of running out of funds, and promote equal treatment of men and women in retirement security even when lifetime earnings and projected average life expectancy may differ greatly. The increasing share of the elderly in the population of all countries makes implementation of sustainable pension systems both more urgent and more difficult. Planners must consider numerous options in pension system design and choose the combination of policies that will optimize coverage, benefits, and financing given a country’s demographics, history, practices regarding family support of the elderly, political system, extent of informal labour, and fiscal situation.
    Keywords: Public Pensions, Public Systems for Elderly, Income to Elderly
    Date: 2013–05
  5. By: Waters, James
    Abstract: We present an information good pricing model with persistently heterogeneous consumers and a rising marginal propensity for them to pirate. Three offsetting pricing mechanisms occur: skimming, compressing price changes, and delaying product launch. We identify a novel trade off in piracy's effect on welfare. We find that piracy quickens sales times and raises welfare in fixed capacity markets, and does the opposite in growing markets. In our model, consumers benefit from piracy except at very high rates in rapidly expanding markets, legal sellers always dislike it, and pirate providers like high but not very high rates. Purchase delay, transient heterogeneity, inelastic demand, and network externalities reduce piracy's effect, but demand uncertainty doesn't.
    Keywords: Information goods; software; piracy; skimming; intertemporal price discrimination; prices; pricing; welfare
    JEL: D60 L11 L86
    Date: 2013–05–12

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