the importance of financial considerations in divorce decisions i introduction one of the most dramatic and commonly cited consequences of divorce is the fall in family money income especially for households headed by divorced women using the panel survey of income dynamics duncan and hoffman 1985 estimate that the family income of divorced and separated women fell by 19 percent during the year following divorce or separation a study by nestel et al 1983 using data from the mature women s cohort of the national longitudinal survey of labor market experience indicates that the poverty rate for households headed by women who were divorced during the survey and did not remarry rose from 10 percent just prior to divorce to 25 percent immediately after dovorce similar results are reported by mott and moore 1982 and espenshade 1979 these statistics however may overestimate the long term negative consequences of divorce because they ignore the possibility of an improvement in financial circumstances through remarriage 1 mott and moore 1982 find that even for women who do not remarry economic status improves over time due primarily to better employment prospects given the large financial costs of divorce especially in the short run it is reasonable to ask how important are financial considerations in divorce decisions this paper explores the linkages between the financial consequences of divorce and the decision to become divorced the paper extends previous work by measuring these consequences over a period of time rather than at one point in time in particular the paper addresses two issues 1 do the expected financial consequences of divorce affect the decision to become divorced and 2 what is the relative importance of short versus long run considerations a standard choice theoretic model predicts that the smaller are the financial costs of divorce the greater is the probability of divorce the financial opportunity cost of divorce is measured as the difference in the expected present values of the income streams within marriage and at divorce the expected income stream at divorce includes the financial value attached to a possible remarriage as well as income from employment welfare alimony and child support payments the empirical analysis utilizes data from the national longitudinal survey of work experience of young women nls a sample of those divorced between 1973 and 1978 is observed over time during marriage after divorce and for some during a remarriage thus the actual income changes resulting from divorce and remarriage are measured income changes for a sample of continuously married women are also measured over a comparable period the expected changes in income for each subsample are estimated as a function of socio economic variables and the values are imputed for the entire sample to explore the relationship between these expected income streams and decisions about divorce the result indicate that the expected short term financial consequences of divorce are a better predictor of subsequent divorce than are the longer term consequences this evidence implies that individuals behave as if they face high discount rates ii economic models of divorce one of the first economic models of divorce was developed and emphirically tested by becker landes and michael 1977 as in any choice theoretic model divorce occurs when the gains from that choice exceed the benefit from remaining married gains from marriage include both a pecuniary component such as pooled household income from the market work of the husband and wife and a non pecuniary component such as children love companionship and household goods from home production gains from divorce include own labor market income home production which may differ between the divorced and married states and the expected value of potential new relationship e g remarriage marriage specific capital such as children has a higher value within marriage and increases the opportunity cost of divorce

are public sector workers more risk averse than private sector workers available evidence suggests that stability of employment is greater in the public sector than in the private sector the value that individuals place on tbis stability depends on tbe individual s degree of risk aversion economic reasoning suggests tbat otber tbings equal tbose individuals witb a high degree of aversion to risk will be more likely tban otbers to seek employment in the public sector this paper tests tbat hypothesis tbrougb tbe use of probit analysis and a measure of risk aversion developed in ibe university of micbigan s panel study of income dynamics the results tend to confirm tbe bypotbesis implying tbat a policy of intersectoral equality of pay for comparable jobs would result inanexcesssupplyof workers to tbe public sector

the learning path of the hidden economy the tax burden and tax evasion in new zealand this paper considers the learning curve relationship between the aggregate tax rate and the relative size of the hidden economy in new zealand some simple non linear models are estimated so that the effects of changes in the effective tax rate on the underground economy can be simulated this study finds that about half of the hidden activity in new zealand is a learned response to changing opportunities and constraints in fiscal policy but this amount varies over the business cycle simulating a zero tax rate permits us to discover the natural rate of underground and criminal activity some partial lessons are drawn for taxation policy in that country

information on strikes and union settlements patterns of coverage in a newspaper of record the authors investigate whether the new york times coverage of strikes and non strike wage settlements in large bargaining units changed during the 1980s a time when a transformation of industrial relations is said to have taken place although the total number of new york times articles on such events declined during the 1980s the authors find that when appropriate control variables are included in the analysis the apparent drop in coverage disappears important variables determining the extent of news coverage were occurrence of a strike strike duration number of workers involved occurrence of federal intervention key industry status that is whether the affected industry was among those industries identified as exceptionally important for wage setting and proximity to new york city they speculate that the reduced number of articles may simply reflect a decreased incidence of strikes

the effect of taxes on labor supply in the underground economy this paper uses micro data from a randomized survey carried out in the metropolitan area of quebec city canada to analyze the decision to evade taxes and work in the underground economy the results indicate that taxes distort labor market activities away from the regular sector to the underground sector but the distortion is small for the average worker the distortion is large however for particular groups of the population such as welfare claimants copyright 1994 by american economic association

regulatory discretion and the unofficial economy johnson kaufmann and shleifer 1997 find that the share of the unofficial economy in gdp is determined by the extent of control rights held by politicians and bureaucrats in post communist economies exploring in more detail the role of bribes and using a broader data set from the oecd latin america and transition economies we find that the unofficial economy accounts for a larger share of gdp when there is more corruption and when the rule of law is weaker while these findings are consistent with the earlier results for transition economies in the larger country sample we find it is not necessarily the case that more regulation or higher taxes directly increases the size of the unofficial economy the problem appears to be not regulation or taxation per se but whether the state administrative system can operate without corruption a high level of regulatory discretion helps create the potential for corruption and drive firms into the unofficial economy

volume flexibility and capacity investment under demand uncertainty the paper considers optimal capacity investment decisions under uncertainty taking a real options approach concerning the production decision we study a flexible and an inflexible scenario the flexible firm can costlessly adjust production over time with the capacity level as the upper bound while the inflexible firm fixes production at capacity level from the moment of investment onwards we find that the flexible firm invests in higher capacity than the inflexible firm where the capacity difference increases with uncertainty for the flexible firm the initial capacity utilization rate can be quite low especially when investment costs are concave and the economic environment is uncertain as to the timing of the investment there are two contrary effects first the flexible firm has an incentive to invest earlier because flexibility raises the project value second the flexible firm has an incentive to invest later because costs are larger due to the higher capacity level the latter effect dominates in highly uncertain economic environments our model being dynamic enables us to derive the at first sight counterintuitive result that an increase in capacity holding cost raises the capacity level the firm invests in

the informal sector and the political economy of development this paper takes an initial step in integrating insights from two sets of literature which have focused on central aspects of development with unfortunate independence it highlights politically valuable resources which are identified in the political economy literature and shows that the informal sector literature provides ample evidence that these resources in general are i scarcely available to informal entities ii poorly valued in their possession and iii more often collectively unexploited by them overall there seems to be an important though neglected bias in how the political system in less developed countries formulates crafts and implements policy

risk aversion and the earnings of us immigrants and natives the literature on the earnings of natives and immigrants has heretofore ignored differences in compensating wages for job risks it is possible that the risk involved in migration may indicate a greater willingness on the part of immigrants to accept riskier jobs than natives alternatively immigrants may attempt to protect their migration investment by choosing occupations with less risk indicating a higher degree of risk aversion this paper examines differences in risk aversion between us immigrants and natives and corresponding differentials in wage premiums for job risk our analysis suggests that on average immigrants are exposed to 21 less risk than natives but receive a 25 higher risk premium the higher degree of risk aversion of immigrants and their lower exposure to risk and thus lower earnings explains 5 of the higher observed earnings of natives we also find that earlier immigrant cohorts pre 1970 are employed in riskier jobs than are recent cohorts but the difference accounts fo

rescaling contraction with a lower cost technology when revenue declines abstract a mature oil field rescaled contraction describes a switch to a technological alternative more appropriate for the depleted state of an underlying resource off shore oil rigs are an illustration since the original technological scale designed for very large output flows becomes inappropriate as the operational efficiency declines later in life and facing a dwindling output flow so a more appropriate extraction technology becomes economic a real option representation is formulated on a stochastic oil price and deteriorating output volume we consider investment divestment decisions both separately and jointly which have different implications for government policies and also option values the resulting model yields analytical or semi analytical results indicating that immediate switching to the lower cost technology could sometimes be hastened as the price volatility increases depending on the current revenue if divestment and switching are considered jointly however greater volatility could also promote hysteresis

the hidden economy as an unobserved variable abstract the technique of unobserved variables is used to estimate the relative size and development time of the hidden economy of oecd countries the burdens of taxation and regulations and the tax morality turn out to be statistically significant determinants at the end of the scandinavian and benc lux countries are expected to have a relatively large and japan and switzerland a relatively small hidden economy canada and the united states are rank in the middle the size of all hidden sectors is estimated to have increased in the period 1960 1973 relative to officially measured gnp

risk preference and the interindustry propensity to strike this paper presents a model of the determinants of a union s decision to strike the model states that assuming management is risk neutral workers tastes for risks will be one important determinant of the decision to strike a risk preference variable from the panel survey of income dynamics and an injury and illness rate for each of 89 manufacturing industries serve as measures of workers tastes for risk the model predicts that industries with high injury rates will experience a disproportionate share of strikes and that a greater share of weakly risk averse workers will be employed in strike prone industries than in strike free industries the author discovers strong support for the first prediction but not for the second

optimal exit and valuation under demand uncertainty a real options approach this paper considers both the optimal exit strategy and the valuation of stochastic cash flows of a firm facing demand uncertainty and potential excess supply by relying on the standard theory of linear diffusions and ordinary nonlinear programming we derive the value of the rationally managed firm and state the necessary condition for optimal exit in contrast to the standard approaches in the real options literature our analysis is completely independent of both dynamic programming and the smooth fit principle i demonstrate that irreversible exit is optimal only when the value of the future productive opportunities becomes smaller than the value of irreversibly exercising the option to exit and in this way avoid further cumulative losses i also present the comparative static properties of the optimal exit threshold and demonstrate that increased uncertainty may increase or decrease the optimal exit threshold depending on the sign of the net convenience yield

on the economic rationale of estimating the hidden economy the estimation of the hidden economy may be considered as a human passion for knowing the unknown although a large literature on the hidden economy exists the subject is still controversial at a very basic level there are disagreements about 1 the definition of the hidden activities 2 the terms used to describe these activities 3 the estimation or measurement procedures and finally 4 on the use of these estimates in economic analysis in this paper we will only consider the issues related to estimation economic and econometric analysis of the hidden economy thus we implicitly accept the term hidden economy and explicitly state the definition before entering into the main discussions for a comprehensive study of past literature readers are referred to feige 1989 gaertner and wenig 1985 and tanzi 1982 and the large number of references in these books the use of the hidden economy estimates for economic and econometric analysis can be classified into three potentially distinct but interrelated categories a the derivation of economic theory and or its implication for the existing theories b the formulation of economic policies and c econometric modelling if we consider that the tax evaded income is the only constituent of the hidden economy then the issues are almost obvious for all three categories however as we will see later such a simple interpretation of the hidden economy estimates is generally not possible for example in this paper we define the hidden economy as the unrecorded national income the unrecorded national income is calculated as the difference between the potential national income for the given currency in circulation and the recorded national income this definition of the hidden economy suggests that in principle it is larger than the tax evaded income the empirical illustrations are taken from the studies conducted in the united kingdom and india where this is a workable definition however for many other countries such an approach is totally inadequate as a measure of unrecorded national income since the method of estimating the hidden economy is constrained by the structure of the economy in this paper we shall present a brief description of a general method of estimating the hidden economy and appraise the applicability and limitation of the method due to space constraint we shall discuss very briefly the importance of the hidden economy on economic theory and on the empirical

investment and capacity choice under uncertain demand this paper extends the real options literature by discussing an investment problem where a firm has to determine optimal investment timing and optimal capacity choice at the same time under conditions of irreversible investment expenditures and uncertainty in future demand after the project is installed with a certain maximum capacity this capacity is fixed as an upper boundary to the output and cannot be adjusted later on it turns out that in the framework of this once and for all decision uncertainty in future demand leads to an increase in optimal installed capacity but on the other hand it causes investment to be delayed to an extent that even small uncertainty makes waiting and accumulation of further information the optimal decision for large ranges of demand limiting the capacity which may be installed weakens this extreme effect of uncertainty

informal sector regulatory compliance and leakage abstract the paper models a vertically related formal and informal sector and endogenizes the size and regulatory compliance status of the informal sector when the formal sector can circumvent costly regulations by outsourcing polluting intermediate goods from the informal sector stricter regulations increase when the composition effect of regulation dominates its scale effect or decrease total pollution and may even have a non monotonic impact we identify conditions under which a partially compliant informal sector acts as a source of leakage and examine implications for optimal enforcement policy further we show that price discrimination by the formal sector when it purchases the intermediate goods from the informal sector can worsen regulatory compliance by the informal sector and lead to more pollution

the underground economies tax evasion and information distortion list of contributors preface introduction edgar l feige part i the meaning measurement and policy implications of the underground economies 1 the meaning and measurement of the underground economy edgar l feige 2 information distortions in social systems the underground economy and other observer subject policymaker feedbacks robert r alford and edgar l feige 3 policy illusion macroeconomic instability and the unrecorded economy robert t mcgee and edgar l feige 4 how large or small should the underground economy be bruno frey part ii the underground economy in western developed nations measurement in different laboratories 5 monetary perspective on underground economic activity in the united states richard d porter and amanda s bayer 6 the unrecorded economy and the national income accounts in the netherlands a sensitivity analysis g a a m broesterhuizen 7 assessing the underground economy in the united kingdom michael o higgins 8 the underground economy in the federal republic of germany a preliminary assessment enno langfeldt 9 the underground economy in sweden ingemar hansson 10 the irregular economy of italy a survey of contributions bruno contini 11 the hidden economy in norway with special emphasis on the hidden labor market arne jon isachsen and steiner strom 12 canada s underground economy rolf mirus and roger s smith 13 the underground economy in france philippe barthelemy part iii the underground economy under central planning 14 the soviet second economy in a political and legal perspective f j m feldbrugge 15 second economy and socialism the hungarian experience istvan r gabor bibliography

the role of site and job characteristics in hedonic wage models recent economic analyses of wage rate differentials have generally used some form of hedonic framework in explaining the observed wage structure while these studies have adopted this common theoretical justification the models have been used to serve two distinct objectives the first of these is an empirical test of the theory of equalizing differences originally introduced by adam smith in such applications see brown 7 lucas 26 olson 28 thaler and rosen 36 and viscusi 40 as examples specific job characteristics measured with technical information or with worker perceptions have been used to explain differences in wage rates across individuals and jobs while there are a number of these studies there has not been a consistent pattern of support for the theory indeed with the exception of job risks many characteristics that a priori would be expected to lead to equalizing differences have often exhibited incorrect and or statistically insignificant measured effects on wages the second use for wage models has been as the basis for an index of the quality of life in urban areas in this framework households are assumed to select residential locations so as to maximize their individual welfare migration between cities provides the mechanism for an equilibrium household assignment under ideal conditions the pattern of equilibrium wage rates reflects the attributes of the cities involved see hoch 20 izraeli 23 cropper lo cropper and arriaga salinas 111 and rosen 31 as examples the purpose of this paper is to develop a model for wage rate differentials that includes both job and site characteristics and to estimate the model with a large micro data set our wage models provide estimates of a market clearing envelope which includes each of two types of past analyses as a

effect of strike activity on firm value the article examines the stock market s reaction to labor management problems and employee strikes a discussion is presented about various categories of strike costs and cumulative abnormal return

investment timing and predatory behavior in a duopoly with endogenous exit abstract this paper investigates the interplay of investment irreversibility and endogenous exit in a duopoly with aggregate demand uncertainty endogenous exit and investment irreversibility produce predatory behavior in very competitive industries in which prices react strongly to changes in quantity and in which capacity increases are not too costly when the market is in decline firms increase capacity in order to subsequently monopolize this market upon a further decrease in demand predatory behavior is particularly likely to occur if fixed costs of operation are substantial large uncertainty has the opposite effect and makes predatory behavior less prevalent predation occurs as investment irreversibility gives commitment power to delay one s own exit and to promote the exit of a competitor this explains predatory behavior in a duopoly without invoking reputation network effects or learning effects

one share fits all regional variations in the extent of the shadow economy in europe herwartz h tafenau e and schneider f one share fits all regional variations in the extent of the shadow economy in europe regional studies a multiple indicators multiple causes mimic approach with spatial effects is followed to estimate the extent of the shadow economy in the regions of the european union in 2007 and 2008 the shadow economic sector is smallest in regions of the netherlands and denmark and highest in greece poland portugal and romania in several countries the extent of shadow activities varies markedly across regions calling for regional diversification of measures against it moreover the eligibility status for structural funding by the european union changes for some regions if shadow activities are included in the gross domestic product to their full extent

optimal investment under operational flexibility risk aversion and uncertainty traditional real options analysis addresses the problem of investment under uncertainty assuming a risk neutral decision maker and complete markets in reality however decision makers are often risk averse and markets are incomplete we confirm that risk aversion lowers the probability of investment and demonstrate how this effect can be mitigated by incorporating operational flexibility in the form of embedded suspension and resumption options although such options facilitate investment we find that the likelihood of investing is still lower compared to the risk neutral case risk aversion also increases the likelihood that the project will be abandoned although this effect is less pronounced finally we illustrate the impact of risk aversion on the optimal suspension and resumption thresholds and the interaction among risk aversion volatility and optimal decision thresholds under complete operational flexibility

can informal firms hurt registered smes access to credit using firm level survey responses from 2009 to 2012 we examine whether competitors from the informal sector affect the credit constraints of registered smes in 86 countries worldwide we also investigate the role played by the quality of institutional environment in exacerbating or in alleviating such effect a weak quality of institutional environment strengthens inter linkages between the formal and the informal sectors increases the costs and decreases the benefits assumed by formal firms and reduces the costs attributed to informality moreover it also results in a large informal economy which influences perceptions about the substitutability between formal and informal goods and law evasion our findings indicate that registered smes facing competition from informal firms are more likely to be credit constrained than other formal smes that are not confronted with such competition this result is consistent with the parasite view and the entrepreneurial perspective of informality which assert that informal firms are capable of competing against registered smes and hurting the latter s profits further we find that such adverse impact manifests only in countries with weak rule of law and high degree of corruption and bureaucracy our results also show that registered micro and small firms are more likely to be affected by the presence of informal firm competitors than medium sized firms this is because the benefits of formality that include access to credit from financial institutions increase with firm size on the whole our findings suggest that governments must enhance their role in increasing access to credit to smaller firms and in providing incentives for informal firms to be integrated in the formal economy moreover in order to achieve inclusive growth our results highlight the importance of improving the business environment which affects all entrepreneurs

invest or exit optimal decisions in the face of a declining profit stream even in the face of deteriorating and highly volatile demand firms often invest in rather than discard aging technologies to study this phenomenon we model the firm s profit stream as a brownian motion with negative drift at each point in time the firm can continue operations or it can stop and exit the project in addition there is a one time option to make an investment that boosts the project s profit rate using stochastic analysis we show that the optimal policy always exists and that it is characterized by three thresholds there are investment and exit thresholds before investment and there is a threshold for exit after investment we also effect a comparative statics analysis of the thresholds with respect to the drift and the volatility of the brownian motion when the profit boost upon investment is sufficiently large we find a novel result the investment threshold decreases in volatility

fixed versus flexible production systems a real options analysis in this work we address investment decisions in production systems by using real options as is standard in literature the stochastic variable is assumed to be normally distributed and then approximated by a binomial distribution resulting in a binomial lattice the methodology establishes a discrete valued lattice of possible future values of the underlying stochastic variable demand in our case and then computes the project value we have developed and implemented stochastic dynamic programming models both for fixed and flexible capacity systems in the former case we consider three standard options the option to postpone investment the option to abandon investment and the option to temporarily shut down production for the latter case we introduce the option of corrective action in terms of production capacity that the management can take during the project by considering the existence of one of the following i a capacity expansion option ii a capacity contraction option or iii an option considering both expansion and contraction the full flexible capacity model where both the contraction and expansion options exist leads as expected to a better project predicted value and thus investment policy however we have also found that the capacity strategy obtained from the flexible capacity model when applied to specific demand data series often does not lead to a better investment decision this might seem surprising at first but it can be explained by the inaccuracy of the binomial model the binomial model tends to undervalue future decreases in the stochastic variable demand while at the same time tending to overvalue an increase in future demand values

a theory of exit in duopoly we develop a duopoly model in which exit occurs because of the existence of fixed costs or opportunity costs each firm enters the market knowing its own cost but not that of its opponent as times goes on each firm becomes increasingly pessimistic about the cost of its remaining rival the time of exit is the only strategic variable so that our model is a war of attrition in contrast to the classic war of attrition however we assume that with positive probability each firm s costs may be low enough that staying in forever is a dominant strategy thus our model unlike the classic one has a unique equilibrium

history institutions and economic performance the legacy of colonial land tenure systems in india we analyze the colonial land revenue institutions set up by the british in india and show that differences in historical property rights institutions lead to sustained differences in economic outcomes areas in which proprietary rights in land were historically given to landlords have significantly lower agricultural investments and productivity in the post independence period than areas in which these rights were given to the cultivators these areas also have significantly lower investments in health and education these differences are not driven by omitted variables or endogeneity problems they probably arise because differences in historical institutions lead to very different policy choices

estimating the size of the danish shadow economy using the currency demand approach an attempt the currency demand approach provides some insight into the size and development of the shadow economy in denmark currency demand is statistically affected by tax rates the difference in currency demand is calculated by comparing the actual tax burden over time to the lowest tax burden in the period 1952 82 the shadow economy grew steadily to 10 per cent of gnp in 1977 and then fluctuated between 7 10 per cent of gnp for the period 1978 82 the calculated size fits nicely with the results obtained using the same

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

modeling energy and development an evaluation of models and concepts most global energy models are developed by institutes from developed countries focusing primarily on issues that are important in industrialized countries evaluation of the results for asia of the ipcc sres models shows that broad concepts of energy and development the energy ladder and the environmental kuznets curve can be observed in the results of the models however improvements can be made in modeling the issues that underlie these concepts like traditional fuels electrification economic structural change income distribution and informal economies given the rapidly growing importance of energy trajectories of developing countries for global sustainability the challenge for the future is to develop energy models that include all these aspects of energy and development

divorce as a risky prospect in 1910 the divorce rate per 1000 members of the us population stood at 0 9 1 this rate showed a slow upward trend for the next 50 years and by 1960 had more than doubled to 2 2 it took only 20 years for the rate to more than double again so that by 1980 the rate was 5 3 for the last 20 years the marriage rate by contrast has experienced mild fluctuations between 10 0 and 11 0 per 1000 in the population with no discernible trend if the same pattern for both rates holds until the year 2000 the annual number of divorces will exceed the annual number of marriages although sociologists have researched divorce extensively only a few economic studies exist this is unfortunate since divorce is likely to have considerable impact on economic vaiables such as hours of work labour force participation human capital accumulation work performance and earnings 2 without denying the influences of peer groups social norms and role models it seems reasonable to suggest that pecuniary considerations ma

the political economy of government responsiveness theory and evidence from india the determinants of government responsiveness to its citizens is a key issue in political economy here we develop a model based on the solution of political agency problems having a more informed an politically active electorate strengthens incentives for governments to be responsive this suggests that there is a role both for democratic institutions and the mass media in ensuring that the preferences of citizens are reflected in policy the ideas behind the model are tested on panel data from india we show that public food distribution and calamity relief expenditure are greater controlling for shocks where governments face greater electoral accountability and where newspaper circulation is highest

estimating the second economy in tanzania abstract the official national accounts of tanzania suffer from two serious weaknesses incomplete coverage as well as inaccurate estimates of the activities covered this arises because many of the activities especially those in the informal sector are either misreported or underrecorded often however the required information is deliberately concealed from public authorities either because the agents are involved in illegal black market activities or where such parallel market activities are legal there is a deliberate intention to evade government controls the misstatement and omission of these second economy activities from official statistics imply that macroeconomic measures are not robust enough for meaningful analysis development planning policy and program formulation this paper attempts to estimate the magnitude of and changes in the second economy in tanzania to establish the extent to which official statistics misstate actual production of goods and services

uses and abuses of estimates of the underground economy ered valuable by at least a part of society narcotics production and distribution prostitution gambling these activities can be large in some countries and should be counted in the national accounts of all countries although they rarely are their omission affects the comparability of data across countries the incomes generated by illegal activities are rarely taxed many other activities such as those associated with the subsistence or informal sectors are estimated rather than measured and are generally not taxed because of the low value they generate to those who engage in them in conclusion there are many reasons beside the ones discussed in this paper why the measurements of national output may not be complete about two decades ago a few economists became convinced that many normal economic activities that should be measured and taxed were taking place underground or in the shadow thus presumably escaping the attention of the statistical offices of the tax authorities and more generally of the government regulators some of these economists also claimed that like alice in wonderland these hidden activities were growing in a ridiculous fashion see gutmann 1977 and feige 1979 by the late 1970s the role of government had grown enormously so that the level of taxation and the tax rates had risen sharply and regulations had proliferated in many countries see tanzi and schuknecht 1997 these developments had created strong incentives for individuals and enterprises to go underground to avoid taxes and regulatory restrictions thus a good case could be made that what came to be called the underground economy was a phenomenon to worry about newspaper articles were ready to accept the

the impact of debt financing on entry and exit in a duopoly this article investigates the interaction between market entry company foreclosure and capital structure in a duopoly we find that the order in which firms foreclose is determined not only by differences in firm specific factors but also by common economic factors such as the interest rate and the market profit volatility we extend the exit model by allowing financially distressed firms to renegotiate their debt contracts through a one off debt exchange offer we find that firms with high bankruptcy costs or with prospects of profit improvement can get bigger reductions on their debt repayments investigating market entry we find that financial vulnerability of the incumbent induces earlier entry article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

unemployment and the shadow economy abstractcurrent research links the shadow economy se and the unemployment rate either indirectly or by means of a preliminary estimate this article establishes and empirically implements a methodology for estimating the size of the se as a direct function of the tax and unemployment rates this link is found to be extremely relevant in countries with high unemployment rates such as greece and spain and less relevant in countries with moderate unemployment rates such as germany and italy unemployment s contribution to the se is shown to be significant especially in the years following the economic downturn of 2008 the calculation of the variance and distribution of these estimates is another significant contribution the common criticism that se estimates are unreliable is addressed by calculating the variance and the distribution of the estimates and the large size of the se in greece and spain is once again confirmed

investment flexibility as a barrier to entry abstract this paper presents a model of investment in a duopoly with firms that choose the scale and timing of investment decision making flexibility and the costs saved by investing in large steps rather than sequences of small steps determine an incumbent s ability to deter entry by a potential competitor entry occurs when these cost savings are very small or very large because the effect of increased industry capacity on the incumbent s assets in place is the same regardless of which firm invests in intermediate cases the incumbent is able to deter entry by making a smaller earlier investment than the potential entrant the smaller investment scale protects the incumbent s assets in place which offsets the incumbent s cost disadvantage from investing in smaller steps than the entrant would choose nevertheless the threat of entry constrains the incumbent s investment behavior and limits its profitability the model is solved using a combination of best response iteration and the projected successive over relaxation method

the value of time and the effect of fines on child car safety seat usage we report the results of a survey on child car safety seat usage and test the hypothesis that the opportunity cost of time is a significant determinant of proper seat use we find that parents with high wage rates are less likely to properly use a car seat we predict that a fine of 1775 along with a certainty of being apprehended once in a four year period would be needed to induce 95 compliance with child car safety seat laws

government effectiveness and regional variation in informal employment abstract this article analyses the role of government effectiveness in the determination of informal employment a theoretical model is developed in which local governance and worker skill level are assumed to influence the decision of the worker whether to seek employment in the formal or informal sectors the model is assessed empirically using data from brazil where almost half of the urban labour force is employed informally the empirical analysis supports the predictions of the model and suggests that the probability of a worker being employed informally is lower in regions with better governance and higher average education

exit in duopoly under uncertainty this paper examines a declining duopoly where the firms must choose when to exit from the market the uncertainty is modeled by letting the revenue stream follow a geometric brownian motion we consider the markovperfect equilibrium in firms exit strategies with a low degree of uncertainty there is a unique equilibrium where one of the fi rms always exits before the other however when uncertainty is increased another equilibrium with the reversed order of exit may appear ruining the uniqueness whether this happens or not depends on the degree of asymmetry in the firm specifi cp arameters

strategic technology choice and capacity investment under demand uncertainty this paper studies the impact of competition on a firm s choice of technology product flexible or product dedicated and capacity investment decisions specifically we model two firms competing with each other in two markets characterized by price dependent and uncertain demand the firms make three decisions in the following sequence choice of technology technology game capacity investment capacity game and production quantities production game the technology and capacity games occur while the demand curve is still uncertain and the production game is postponed until after the demand curve is revealed we develop best response functions for each firm in the technology game and compare how a monopolist and a duopolist respond to a given flexibility premium we show that the firms may respond to competition by adopting a technology which is the same as or different from what the competitor adopts we conclude that contrary to popular belief flexibility is not always the best response to competition flexible and dedicated technologies may coexist in equilibrium we demonstrate that as the difference between the two market sizes increases a duopolist is willing to pay less for flexible technology whereas the decision of a monopolist is not affected further we find that a firm that invests in flexibility benefits from a low correlation between demands for two products but the extent of this benefit differs depending on the competitor s technology choice our results indicate that higher demand substitution may or may not promote the adoption of flexibility under competition whereas it always facilitates the adoption of flexibility without competition finally we show that contrary to intuition as the competitor s cost of capacity increases the premium a flexible firm is willing to pay for flexibility decreases

dedicated vs product flexible production technology strategic capacity investment choice this paper studies the optimal investment strategies of an incumbent and a potential entrant that can both choose between a product flexible and dedicated technology in a two product market characterized by uncertain demand the product flexible production technology has certain advantages especially when the economic environment is uncertain on the other hand the dedicated production technology allows a firm to commit to production quantities this gives strategic advantages which can outweigh the value of flexibility it turns out that both firms prefer for some scenarios the dedicated production technology however we find that in a game with sequential technology choices both firms investing dedicated will not be an equilibrium especially when the economic environment is more uncertain the incumbent overinvests in product flexible capacity to force the entrant to choose the dedicated technology then the incumbent is the only firm with the product flexible production technology which results in a high payoff

investment in oligopoly under uncertainty the accordion effect this paper studies investments in new markets where more than two anticipated identical competitors are present in case of three firms an accordion effect is detected an exogenous demand shock results in a change of the wedge between investment thresholds of the first and second investor that is qualitatively different from the change of the wedge between the second and third investment threshold furthermore it turns out that in the three firm case the investment timing of the first investor lies in between the one and the two firm case these results are numerically extended to the n firm case

capacity choice under uncertainty in a duopoly with endogenous exit abstract applying the real options framework this article investigates the investment decision of the entrant given that an incumbent is already active both firms have an option to exit this market if the demand level falls too low the combination of three decision components capacity choice entry and exit timing results into multiple trigger strategies for the entrant in particular in the presence of a large incumbent it can either choose to coexist with its rival in a duopoly or eventually monopolize the market by installing a sufficiently large capacity the former scenario is realized when the market is large while the latter occurs when the market is small when the market is of intermediate size a hysteresis region emerges where the entrant does not take any actions and prefers to postpone investment

how effective is a big push to the small evidence from a quasi experiment summary this paper investigates whether a big push to the extreme poor in terms of a one off large grant enables them to participate in the microfinance program the analysis uses data from a quasi experiment on brac s ultra poor program in bangladesh the results for the baseline and repeat survey data for the treatment and comparison groups show that such a big push does make a significant impact on graduation to the microfinance program the results are robust to correction for self selection bias social capital and awareness also play important role in their decision on ngo membership and borrowing

shedding light on the shadow economy a nighttime light approach abstractmeasuring the shadow economy is inherently difficult but critical for understanding economic development using census data on formal and informal sectors in cambodia we document that 96 6 per cent of non farm establishments do not formally register with the government and their sales accounted for 76 6 per cent of total sales in 2011 estimating their past sales from changes in nighttime light for 1993 2010 we find that both formal and informal firms increased their estimated sales the share of informal sales increased from 68 8 per cent in 1993 to 76 6 per cent in 2011 suggesting that the informal sector increased quantitatively in both absolute and relative terms over time

developing real option game models by mixing concepts from both game theoretic analysis and real options theory an investment decision in a competitive market can be seen as a game between firms as firms implicitly take into account other firms reactions to their own investment actions we review two decades of real option game models suggesting which critical problems have been solved by considering game theory and which significant problems have not been yet adequately addressed we provide some insights on the plausible empirical applications or shortfalls in applications to date and suggest some promising avenues for future research

nonlinear pricing and exclusion i buyer opportunism we study the exclusionary properties of nonlinear price quantity schedules in an aghion bolton style model with elastic demand and product differentiation we distinguish three regimes depending on whether and how the price charged by the dominant firm depends on the quantity purchased from the rival firm we find that the supply of rival good is distorted downward moreover given the quantity supplied from the rival the buyer may opportunistically purchase inefficiently many units from the dominant firm to pocket quantity rebates we show that the possibility for the buyer to dispose of unconsumed units attenuates the opportunism problem and limits the exclusionary effects of nonlinear pricing

valuing changes in health risks a comparison of alternative measures essential to efficient provision of health safety and the environment is correct valuation of risks to human health in a world of scarcity difficult decisions concerning tradeoffs between health and other desirables are unavoidable in this paper we develop a model of health investment under uncertainty which yields a general expression for values of changes in risks to human health the preference based values of morbidity risks and mortality risks are ex ante dollar equivalents of changes in expected utility associated with risk changes the preference based values are related to two alternative measures costs of illness and preventive expenditures which are thought to be lower bounds on the value of risk reductions we demonstrate that these alternative measures are not even special cases of the more general measure and that the size relationships among the three measures are complex also we derive the relationship between the willingness to pay for risk changes and the consumer surpluses associated with health changes which occur with certainty the next section contains a brief review of the approaches to valuing changes in health

strategic capacity investment under uncertainty this article considers investment decisions within an uncertain dynamic and duopolistic framework each investment decision involves to determine the timing and the capacity level the simultaneous analysis of timing and capacity decisions extends work on entry deterrence accommodation to consider a timing delay element we find that when applying an entry deterrence policy the first investor or incumbent overinvests in capacity for two reasons first it delays the investment of the second investor or entrant second the entrant will invest in less capacity we also find that greater uncertainty makes entry deterrence more likely

short long and spatial dynamics of informal employment di caro p and nicotra g short long and spatial dynamics of informal employment regional studies this paper analyses regional shadow labour markets cross regional migration flows are introduced in a stochastic two sector model used to study the effects of regional interactions on informality empirical results show that informal activities across italian regions are driven by the inefficient provision of public goods and high taxes regional connections are found to be significant place specific reactions of informal employment to national shocks in the official economy are investigated finding that the informal sector can act as a complement to or a substitute for formal activities the summary of the results and policy conclusions are then discussed

the size and development of the shadow economy an empirical investigation from states of india abstract using the state level data from india this paper investigates the size of the hidden economy in indian states over the period 1974 75 to 1995 96 our analysis has shown that after liberalization of the indian economy in 1991 92 the growth in the size of the hidden economy has decreased on an average our results show that the growth in the size of the hidden economy is approximately 4 less in scheduled election years than in all other years we also demonstrate that the growth is significantly lower in those states where the coalition government is in power an increased growth of newspapers and the literacy rates translate to cleaner governance e g to fewer amounts of shadow economy activities in the economy

strategic technology switching under risk aversion and uncertainty abstract firms devising green investment strategies within a deregulated environment must take into account not only economic and technological uncertainty but also strategic interactions due to competition also further complicating green investment decisions is the fact that firms are likely to exhibit risk aversion since alternative energy technologies entail risk that cannot be diversified therefore we develop a utility based real options framework for pre emptive and non pre emptive competition in order to analyse how economic and technological uncertainty interact with risk aversion to impact the adoption of an existing technology in the light of uncertainty over the arrival of an improved version we confirm that greater risk aversion delays investment and show that technological uncertainty accelerates the follower s entry delays the entry of the pre emptive leader and intriguingly does not affect the non pre emptive leader s investment decision also we show how the relative loss in the leader s value due to the follower s entry is affected by economic and technological uncertainty as well as risk aversion and how the risk of pre emption under increasing economic uncertainty raises the value of direct investment in the new technology relative to stepwise investment