We model decisions with respect to formality or informality for entrepreneurs in a newindustry for a developing economy. We show that informality allows a leader to explore,without significant sunk costs, the potential profitability of the industry; that is, informality maybe a stepping stone,...

We provide an analysis of enforcement policies applicable to formal sector in dual labor markets. We use a framework with heterogeneous firms, endogenous determination of informal wage and politically dictated enforcement strategies. Firms which operate both in the formal and informal sectors do...