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...

It is widely recognised that a number of segments of social life in advanced industrial societies are ’self-policing’ without the constant intervention of government, because one actor can only succeed at the expense of one or more other actors, whose interest therefore lies in keeping the...