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We consider an economy with two groups of individuals, rich and poor. A central authority can either directly redistribute income to the poor, or allow for some degree of informality in economic activities by not enforcing property rights. The optimal degree of informality depends upon the...
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It is often argued that informal labor markets in developing countries promote growth by reducing the impact of regulation. On the other hand informality may reduce the amount of social protection offered to workers. We extend the wage-posting framework of Burdett and Mortensen (1998) to allow...
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