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on Informal and Underground Economics |
| By: | Oscar Iván Ávila-Montealegre; Anderson Grajales-Olarte; Juan J. Ospina-Tejeiro; Mario A. Ramos-Veloza |
| Abstract: | We examine the role of labor informality in shaping macroeconomic volatility in a small open economy. Using a DSGE model calibrated to Colombia, we focus on worker-level rather than firm-level informality. The model features heterogeneous households and a segmented labor market with formal and informal workers, incorporating wage rigidities and productivity differences. Our results show that higher informality amplifies the volatility of consumption and investment, which is consistent with the empirical evidence. The mechanism operates through the interaction of wage rigidities in the formal sector with lower productivity of informal workers. Quantitatively, the model accounts for a significant share of the observed link between informality and volatility. These findings highlight how labor market frictions magnify business cycle fluctuations in emerging economies. *****RESUMEN: En este trabajo, examinamos el papel de la informalidad laboral en la volatilidad macroeconómica en una economía pequeña y abierta. Para ello, utilizamos un modelo DSGE calibrado para Colombia en el que nos centramos en la informalidad a nivel de los trabajadores, en lugar de a nivel de las empresas. El modelo considera hogares heterogéneos y un mercado laboral segmentado, con trabajadores formales e informales, rigideces salariales y diferencias de productividad. Los resultados muestran que una mayor informalidad aumenta la volatilidad del consumo y la inversión, lo que concuerda con la evidencia empírica. Este efecto se produce a través de la interacción entre las rigideces salariales del sector formal y la menor productividad de los trabajadores informales. Cuantitativamente, el modelo explica una parte significativa de la relación observada entre la informalidad y la volatilidad. Estos resultados ponen de manifiesto cómo las fricciones del mercado laboral amplifican las fluctuaciones del ciclo económico en las economías emergentes. |
| Keywords: | DSGE, small open economy, informality, business cycles, economía pequeña y abierta, informalidad, ciclos de los negocios. |
| JEL: | E26 E32 J46 O17 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1345 |
| By: | Alan Finkelstein Shapiro; Olli-Pekka Kuusela |
| Abstract: | Zambia, an economy heavily reliant on hydropower for electricity, has faced sustained disruptions to electricity generation amid increasingly frequent and severe droughts. These drought-related disruptions have caused large GDP losses in recent years and have tilted electricity generation towards polluting sources, putting the green transition at risk. Current policy proposals aim to dramatically expand the share of electricity from solar. |
| Keywords: | Low income countries, Sub-Saharan Africa, Informal work, Green energy transition, Fiscal policy, Zambia |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2026-16 |
| By: | Jessica Coria |
| Abstract: | Large volumes of e-waste collected under formal schemes in high-income countries are still processed informally in developing ones, despite continuous policy efforts to reverse this trend. This paper shows that the persistence of informal e-waste processing is a consequence of how global waste flows interact with domestic market structure. I develop a two-country model in which a cost-minimizing broker exports low-value fractions of e-waste to a poorer country, where informal dismantlers and licensed recyclers compete to purchase material from local collectors. Because formal facilities incur fixed-capacity costs, their competitiveness depends on achieving sufficiently high-value throughput. Low-value exports from the rich country increase total inflows but depress the effective high-value throughput and dilute domestic subsidies, keeping average costs high and allowing informal dismantlers to outbid formal recyclers. The model generates a formalization trap with multiple equilibria and explains why widely used policies, including per-unit subsidies, capital support, higher recycling targets in rich countries, and integration of informal collectors into formal systems, often fail to trigger a transition toward formal treatment. |
| Keywords: | electronic waste, Informality, recycling and waste management, international trade in waste, formalization traps, developing countries |
| JEL: | O17 O19 F18 Q53 Q58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12471 |
| By: | Rohan Sweeney (Centre for Health Economics, Monash Business School, Monash University); Farzana Hossain (Centre for Health Economics, Monash Business School, Monash University, The Superpower Institute, Melbourne); Jumriani Ansar (Faculty of Public Health, Hasanuddin University, Makassar); Indra Dwinata (Faculty of Public Health, Hasanuddin University, Makassar); Sitti Andriani Anwar (Faculty of Public Health, Hasanuddin University, Makassar); Arlyani Risal (Faculty of Public Health, Hasanuddin University, Makassar); Gang Chen (Centre for Health Economics, Monash Business School, Monash University, Melbourne School of Population and Global Health, University of Melbourne); Michaela F. Prescott (Faculty of Art Design & Architecture, Monash University); S Fiona Barker (School of Public Health and Preventive Medicine, Monash University); Karin Leder (School of Public Health and Preventive Medicine, Monash University); Ansariadi Ansariadi (Faculty of Public Health, Hasanuddin University, Makassar); David W. Johnston (Centre for Health Economics, Monash Business School, Monash University) |
| Abstract: | This study employs two discrete choice experiments (DCEs) conducted with two sample groups in Indonesia to investigate the informal settlement upgrading priorities of residents (sample 1) and explore how they align with public taxpayers’ preferences (sample 2). The first DCE explores the relative importance placed upon common planning and public health priorities, such as water security, drainage, and diarrhoea in children, alongside local economic development priorities. The second DCE investigates the relative importance placed upon project implementation design considerations, including project completion time and community consultation. Our findings reveal that residents particularly prioritise improvements in water quality and economic development. While informal settlement upgrading interventions often prioritise improving water, sanitation and hygiene (WaSH) to reduce diarrhoea and other water-borne disease, our study highlights that residents also highly value economic empowerment, underscoring the need for integrated upgrading approaches that address both health and livelihood concerns. Taxpayer perspectives were well-aligned on upgrading outcome priorities, but diverged slightly on project implementation. Whereas residents prioritized minimizing project duration and were less concerned with significant community consultation, taxpayers emphasized generating employment opportunities for residents within project designs. Both groups expressed an aversion to residents bearing full responsibility for resourcing ongoing operations and maintenance, preferring government or shared responsibility, highlighting the need for sustainable funding models. The study highlights the value of DCEs as a tool to support locally-led development, informing upgrading strategies that are more likely to be both politically feasible and successfully appropriated into urban livelihood practices of residents. |
| Keywords: | informal settlements, slum upgrading, infrastructure appropriation, locally-led development, discrete choice experiment |
| JEL: | O18 H41 I15 O12 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:mhe:chemon:2026-02 |
| By: | Devansh Jalota; Matthew Tsao |
| Abstract: | Informal and privatized transit services, such as minibuses and shared auto-rickshaws, are integral to daily travel in large urban metropolises, providing affordable commutes where a formal public transport system is inadequate and other options are unaffordable. Despite the crucial role that these services play in meeting mobility needs, governments often do not account for these services or their underlying incentives when planning transit systems, which can significantly compromise system efficiency. Against this backdrop, we develop a framework to analyze the incentives underlying informal and privatized transit systems, while proposing mechanisms to guide public transit operation and incentive design when a substantial share of mobility is provided by such profit-driven private operators. We introduce a novel, analytically tractable game-theoretic model of a fully privatized informal transit system with a fixed menu of routes, in which profit-maximizing informal operators (drivers) decide where to provide service and cost-minimizing commuters (riders) decide whether to use these services. Within this framework, we establish tight price of anarchy bounds which demonstrate that decentralized, profit-maximizing driver behavior can lead to bounded yet substantial losses in cumulative driver profit and rider demand served. We further show that these performance losses can be mitigated through targeted interventions, including Stackelberg routing mechanisms in which a modest share of drivers are centrally controlled, reflecting environments where informal operators coexist with public transit, and cross-subsidization schemes that use route-specific tolls or subsidies to incentivize drivers to operate on particular routes. Finally, we reinforce these findings through numerical experiments based on a real-world informal transit system in Nalasopara, India. |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2602.10456 |
| By: | Ibarra, Facundo Leonel; Gallo, Marcos Esteban; Actis Di Pasquale, Eugenio |
| Abstract: | El presente trabajo tiene como objetivo analizar la forma en que la extensión del trabajo informal y precario condicionó la evolución de los ingresos reales promedio, así como detectar diferencias en la dinámica de los ingresos que presentan los distintos segmentos del mercado laboral. A tal fin, se armonizaron los datos de la EPH con las dimensiones tenidas en cuenta en la definición de estos dos fenómenos. Los principales resultados permiten vislumbrar la situación desfavorable en la que se encuentran los trabajadores informales y precarizados, tanto en lo que hace en la evolución de sus ingresos como en la inestabilidad laboral ante la destrucción de puestos de trabajo. |
| Keywords: | Segmentación del Mercado de Trabajo; Informalidad Laboral; Precarización Laboral; Distribución del Ingreso; Argentina; 2016-2024; |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:nmp:nuland:4456 |