Underground Activity And Institutional Change: Productive, Protective And Predatory Behavior In Transition Economies
AbstractThis paper examines why some transitions are more successful than others by focusing attention on the role of productive, protective and predatory behaviors from the perspective of the new institutional economics. Many transition economies are characterized by a fundamental inconsistency between formal and informal institutions. When formal and informal rules clash, noncompliant behaviors proliferate, among them, tax evasion, corruption, bribery, organized criminality, and theft of government property. These wealth redistributing protective and predatory behaviors activities absorb resources that could otherwise be used for wealth production resulting in huge transition costs. Noncompliant behaviors--evasion, avoidance, circumvention, abuse, and/or corruption of institutional rules--comprise what we can be termed underground economies. A variety of underground economies can be differentiated according to the types of rules violated by the noncompliant behaviors. The focus of the new institutional economics is on the consequences of institutions--the rules that structure and constrain economic activity--for economic outcomes. Underground economics is concerned with instances in which the rules are evaded, circumvented, and violated. It seeks to determine the conditions likely to foster rule violations, and to understand the various consequences of noncompliance with institutional rules. Noncompliance with ‘bad” rules may actually foster development whereas non compliance with “good” rules will hinder development. Since rules differ, both the nature and consequences of rule violations will therefore depend on the particular rules violated. Institutional economics and underground economics are therefore highly complementary. The former examines the rules of the game, the latter the strategic responses of individuals and organizations to those rules. Economic performance depends on both the nature of the rules and the extent of compliance with them. Institutions therefore do affect economic performance, but it is not always obvious which institutional rules dominate. Where formal and informal institutions are coherent and consistent, the incentives produced by the formal rules will affect economic outcomes. Under these circumstances, the rule of law typically secures property rights, reduces uncertainty, and lowers transaction costs. In regimes of discretionary authority where formal institutions conflict with informal norms, noncompliance with the formal rules becomes pervasive, and underground economic activity is consequential for economic outcomes.
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 EconWPA in its series Development and Comp Systems with number 0305001.
Length: 20 pages
Date of creation: 06 May 2003
Date of revision:
Note: Type of Document - pdf; prepared on IBM PC ; to print on HP/PostScript pdf file; pages: 20 . 20 pages pdf file
Contact details of provider:
Web page: http://126.96.36.199
transition economies; underground economies; institutions; property rights; transaction costs; tax evasion; corruption; rent seeking.;
Find related papers by JEL classification:
- P2 - Economic Systems - - Socialist Systems and Transition Economies
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
- K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
- O5 - Economic Development, Technological Change, and Growth - - Economywide Country Studies
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Feige, E.L., 1991. "Socialist Privatization," Papers 1a, United Nations World Employment Programme-.
- Edgar L. Feige, 2003.
"Defining And Estimating Underground And Informal Economies: The New Institional Economics Approach,"
Development and Comp Systems
- Feige, Edgar L., 1990. "Defining and estimating underground and informal economies: The new institutional economics approach," World Development, Elsevier, vol. 18(7), pages 989-1002, July.
- Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
- Vito Tanzi, 1994. "Corruption, Governmental Activities, and Markets," IMF Working Papers 94/99, International Monetary Fund.
- K.P. Kannan & N. Vijayamohanan Pillai, 2001. "The political economy of public utilities: A study of the power sector," Centre for Development Studies, Trivendrum Working Papers 316, Centre for Development Studies, Trivendrum, India.
- Fidrmuc, Jan & Gërxhani, Klarita, 2005.
"Formation of Social Capital in Central and Eastern Europe: Understanding the Gap Vis-a-Vis Developed Countries,"
CEPR Discussion Papers
5068, C.E.P.R. Discussion Papers.
- Jan Fidrmuc & Klarita Gërxhani, 2005. "Formation of social capital in Central and Eastern Europe: Understanding the gap vis-à-vis developed countries," William Davidson Institute Working Papers Series wp766, William Davidson Institute at the University of Michigan.
- Klarita Gërxhani & Kuiper, E., 2004. "WP 32 - Tax evasive behaviour and gender in a transition country," AIAS Working Papers wp32, AIAS, Amsterdam Institute for Advanced Labour Studies.
- Roberto Dell'Anno & Adalgiso Amendola, 2008. "Istituzioni, Diseguaglianza ed Economia Sommersa: quale relazione?," Quaderni DSEMS 24-2008, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
- Roberto Dell’Anno, 2010. "Institutions and human development in the Latin American informal economy," Constitutional Political Economy, Springer, vol. 21(3), pages 207-230, September.
- Sabine Bernabe, 2002. "Informal Employment in Countries in Transition: A conceptual framework," CASE Papers case56, Centre for Analysis of Social Exclusion, LSE.
- Klarita Gërxhani, 2003. "WP 12 - Politico-economic institutions and the informal sector in Albania," AIAS Working Papers wp12, AIAS, Amsterdam Institute for Advanced Labour Studies.
- Andrimihaja, Noro Aina & Cinyabuguma, Matthias & Devarajan, Shantayanan, 2011. "Avoiding the fragility trap in Africa," Policy Research Working Paper Series 5884, The World Bank.
- Jan Fidrmuc & Klarita Gërxhani, 2007.
"Mind the Gap! Social Capital, East and West,"
CEDI Discussion Paper Series
07-10, Centre for Economic Development and Institutions(CEDI), Brunel University.
- Alexander Smajgl, 2004. "Modelling the effect of learning and evolving rules on the use of common-pool resources," Computing in Economics and Finance 2004 178, Society for Computational Economics.
- Klarita Gërxhani, 2007. "“Did You Pay Your Taxes?” How (Not) to Conduct Tax Evasion Surveys in Transition Countries," Social Indicators Research, Springer, vol. 80(3), pages 555-581, February.
- François Gardes & Christophe Starzec, 2009. "Polish Households' Behavior in the Regular and Informal Economies," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00449447, HAL.
- Ekaterina VOSTROKNUTOVA, 2003.
"Shadow Economy, Rent-Seeking Activities and the Perils of Reinforcement of the Rule of Law,"
Economics Working Papers
ECO2003/09, European University Institute.
- Ekaterina Vostroknutova, 2003. "Shadow Economy, Rent-Seeking Activities and the Perils of Reinforcement of the Rule of Law," William Davidson Institute Working Papers Series 2003-578, William Davidson Institute at the University of Michigan.
- Klarita Gërxhani, 2003. "WP 8 - Tax vasion in transition: Outcome of an institutional clash? -Testing Feige's conjecture," AIAS Working Papers wp8, AIAS, Amsterdam Institute for Advanced Labour Studies.
- Ruta Aidis, 2002. "Why don't we see more Small- and Medium-sized Enterprises (SMEs) in Lithuania?," Tinbergen Institute Discussion Papers 02-038/2, Tinbergen Institute.
- Pillai N., Vijayamohanan, 2008. "Power Sector Reform: Some Lessons for Kerala," MPRA Paper 12334, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.