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Seeking Rent in the Informal Sector

Author

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  • Kar, Saibal

    (Centre for Studies in Social Sciences, Calcutta)

  • Mandal, Biswajit

    (Visva Bharati)

  • Marjit, Sugata

    (Centre for Studies in Social Sciences, Calcutta)

  • Mukherjee, Vivekananda

    (Jadavpur University)

Abstract

Rent seeking within the vast informal segment of the developing world is a relatively underdexplored topic in the interface of labor market policies and public economics. Moreover, how rent seeking and corruption within the informal segment is affected by economic reforms targeted for the formal sector is rarely discussed in the literature. This paper fills the gap. We identify conditions under which economic reform in the formal segment will increase the rate of corruption or rent seeking in the informal sector and raise the pay-off for those involved in rent seeking activities. When formal sector contracts due to reforms, offsetting forces determine the magnitude of rent seeking in the informal sector. Thus, economic reforms may increase corruption instead of reducing it, as claimed previously.

Suggested Citation

  • Kar, Saibal & Mandal, Biswajit & Marjit, Sugata & Mukherjee, Vivekananda, 2019. "Seeking Rent in the Informal Sector," IZA Discussion Papers 12068, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp12068
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    Cited by:

    1. Vivekananda Mukherjee and Aparajita Roy, 2019. "Incidence of Corruption On Formal And Informal Sectors: Is There Any Symmetry?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 44(3), pages 79-99, September.
    2. Shrimoyee Ganguly & Rajat Acharyya, 2021. "Trade liberalization, export quality, and three dimensions of wage inequality," Review of Development Economics, Wiley Blackwell, vol. 25(4), pages 2157-2179, November.
    3. Klaus Prettner & Davud Rostam‐Afschar, 2020. "Can taxes raise output and reduce inequality? The case of lobbying," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(5), pages 455-461, November.
    4. Saha, Shrabani & Beladi, Hamid & Kar, Saibal, 2021. "Corruption control, shadow economy and income inequality: Evidence from Asia," Economic Systems, Elsevier, vol. 45(2).

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    Keywords

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    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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