Institutions, Strains and the Underground Economy
AbstractThe paper interprets the dynamics of the underground economy in a transforming environment by highlighting the role of institutions in enforcing the rules of the game and the phenomenon of strain. A basic idea is that the underground economy emerges as a means for the system to diffuse its internal strain; the underground economy operates as a homeostatic mechanism which helps the system survive temporarily -as in the case of a command economy-and affects the structure of output according to consumers' preferences. In the same vein can be judged the emergence of unofficial activities in an over regulated system be it market-based. Part one deals with the command economy and its specific institutions (rules of the game) as a glaring example of neglect of consumers' preferences and as a system developing endemic shortages. In such a system very intense strain emerges. Part two tries to explain strain during system transformation and its impact on the underground economy. In this case the magnitude of strain is related to dramatic changes in relative prices and the imbalance between exit and entry. Similarly relevant for explaining strain are the institutions in the making; still "soft" rules shape agents' behaviors and explain the resilience and the patterns of unofficial activities. Such is the case of reputation seen as an asset, and of the local standards of compliance with the legal framework. The last part applies empirical analysis, a model to the Romanian economy and speculates on the size of local unofficial activities.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 98.
Date of creation: 01 Nov 1997
Date of revision:
Contact details of provider:
Postal: 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109
Phone: 734 763-5020
Fax: 734 763 5850
Web page: http://www.wdi.umich.edu
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-04-03 (All new papers)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Albu, Lucian-Liviu, 2007. "A model to estimate informal economy at regional level: Theoretical and empirical investigation," MPRA Paper 3760, University Library of Munich, Germany.
- Lucian Liviu ALBU & Ion GHIZDEANU & Mărioara IORDAN, 2008. "Informal Economic Estimation Models at Macroeconomic Level. Some Theoretical and Methodologial Considerations," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 1(2), pages 177-190.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laurie Gendron).
If references are entirely missing, you can add them using this form.