nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2014‒08‒20
five papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Heterogeneous Firms and Informality: The Effects of Trade Liberalization on Labor Markets By Becker, Dennis
  2. Minimum wage and informality in Ecuador By Canelas, Carla
  3. Urbanization and Agglomeration Benefits: Gender Differentiated Impacts on Enterprise Creation in India's Informal Sector By Ghani, Ejaz; Kanbur, Ravi; O'Connell, Stephen D.
  4. Social Norms and the Enforcement of Laws By Daron Acemoglu; Matthew O. Jackson
  5. Preconditions for an Informal Economy: 'Trucking and Bartering' in New Guinea By John D. Conroy

  1. By: Becker, Dennis
    Keywords: International Relations/Trade, Production Economics,
    Date: 2014
  2. By: Canelas, Carla
    Abstract: This paper investigates if changes in the minimum wage have influenced changes on the formality and informality rates, and the level of wages in Ecuador. A 12-year panel was built. It allows to overcome the short time span of household data and so to char
    Keywords: labor markets, informality, minimum wage
    Date: 2014
  3. By: Ghani, Ejaz; Kanbur, Ravi; O'Connell, Stephen D.
    Keywords: International Development, Production Economics,
    Date: 2014
  4. By: Daron Acemoglu; Matthew O. Jackson
    Abstract: We examine the interplay between social norms and the enforcement of laws. Agents choose a behavior (e.g., tax evasion, production of low-quality products, corruption, substance abuse, etc.) and then are randomly matched with another agent. An agent's payoff decreases with the mismatch between her behavior and her partner's, as well as average behavior in society. A law is an upper bound (cap) on behavior and a law-breaker, when detected, pays a fine and has her behavior forced down to the level of the law. Law-breaking depends on social norms because detection relies, at least in part, on private cooperation and whistle-blowing. Law-abiding agents have an incentive to whistle-blow because this reduces the mismatch with their partner's behavior as well as the overall negative externality. When laws are in conflict with norms so that many agents are breaking the law, each agent anticipates little whistle-blowing and is more likely to also break the law. Tighter laws (banning more behaviors) have counteracting effects, reducing behavior among law-abiding individuals but inducing more law-breaking. Greater fines for law breaking and better public enforcement reduce the number of law-breakers and behavior among law-abiding agents, but increase levels of law breaking among law-breakers (who effectively choose their behavior targeting other high-behavior law-breakers). Within a dynamic version of the model, we show that laws that are in strong conflict with prevailing social norms may backfire, while gradual tightening of laws can be more effective by changing social norms.
    JEL: C72 C73 P16 Z1
    Date: 2014–08
  5. By: John D. Conroy (Crawford School of Public Policy, The Australian National University)
    Abstract: This fourth paper, in a series on the theme of the informal economy, considers the extent to which premodern trade in Melanesia constituted any preparation for engagement with the market. It reviews explanations of trade and exchange in 'aboriginal' societies, from Adam Smith in the eighteenth century and the German historical school in the nineteenth, to their modern heirs and critics. The view of trade as due to a natural human tendency to 'truck and barter' is counter-posed against a conception of exchange as the product of socially regulated customs, in the manner of The Gift. Malinowski's account of the kula, and its (mis)interpretation by Van Leur, the historian of Asian trade, raises the question whether Melanesia possessed any counterpart of the travelling Asian peddler. To consider this question, the paper examines the traditional trading systems of regions which would later become the hinterlands of three modern towns (Rabaul, Port Moresby and Goroka). In preparation for later discussion of these towns' colonial experience, the paper surveys the traditional trade of the New Guinea interior, the long-distance seaborne trade of the coasts and islands, and the particular case of the Gazelle Peninsula. It draws conclusions which throw some light on the question of Asian-style 'peddling' in Melanesia. Finally, the paper considers how Keith Hart's concept of 'informality', derived from Weber's notion of rational/legal bureaucracy, could be seen as applicable to the early colonial setting of New Guinea. It finds a piquant correspondence between a highly bureaucratized German New Guinea and the Weberian original, located back in Bismarck's Berlin.
    Date: 2013–04

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