This paper investigates the relationship between ethnic fragmentation and the size of the informal, or hidden, economy. Recent experimental and empirical research links, in turn, ethnicity and trust, and trust and tax compliance. In addition, recent empirical studies have identified an...

Absence of well-functioning formal institutions leads to reliance on social networks to enforce informal contracts. Social ties may aid cooperation, but agents vary in network centrality, and this hierarchy may hinder cooperation. To assess the extent to which networks substitute for...