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Enforcement of Regulation, Irregular Sector, and Firm Performance

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  • Bonaventura, Luigi
  • Orlando, Danilo

Abstract

In this paper we investigate how enforcement of regulation affects the size of irregular sector, firm perfomance and the exit rate to the market. Three kinds of enforcement policy will be tested in the model: control, punish and legitimacy. The first policy is based on the number of inspectors present in the economy; the second is defined by the magnitude of punish; the third is measured by the social legitimacy. Our results show the negligible influence of control to enforce irregularity; the strong effect of punish on irregular sector with a high exit rate; the good effect of legitimacy policy in promoting regularity with a low output performance.

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File URL: http://mpra.ub.uni-muenchen.de/14686/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14686.

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Date of creation: Mar 2007
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Handle: RePEc:pra:mprapa:14686

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Related research

Keywords: Irregular sector; enforcement policies; exit rate; firm perfomance;

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References

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  1. Lando, Henrik & Shavell, Steven, 2004. "The advantage of focusing law enforcement effort," International Review of Law and Economics, Elsevier, vol. 24(2), pages 209-218, June.
  2. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  3. R. Hirschowitz, 1989. "The Other Path: The Invisible Revolution in the Third World," South African Journal of Economics, Economic Society of South Africa, vol. 57(4), pages 266-272, December.
  4. A. Mitchell Polinsky & Steven Shavell, 1999. "The Economic Theory of Public Enforcement of Law," NBER Working Papers 6993, National Bureau of Economic Research, Inc.
  5. Ihrig, Jane & Moe, Karine S., 2004. "Lurking in the shadows: the informal sector and government policy," Journal of Development Economics, Elsevier, vol. 73(2), pages 541-557, April.
  6. Shavell, Steven, 1993. "The Optimal Structure of Law Enforcement," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 255-87, April.
  7. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-92, May.
  8. Almeida, Rita & Carneiro, Pedro, 2005. "Enforcement of labor regulation, informal labor, and firm performance," Policy Research Working Paper Series 3756, The World Bank.
  9. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
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Cited by:
  1. Luigi Bonaventura, 2011. "Enforcement of regulation, irregular sector, and firm performance: a computational agent-based model," Netnomics, Springer, vol. 12(2), pages 99-113, July.

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