Enforcement of Regulation, Irregular Sector, and Firm Performance

Bonaventura, Luigi and Orlando, Danilo (2007): Enforcement of Regulation, Irregular Sector, and Firm Performance.

Abstract

In this paper we investigate how enforcement of regulation affects the size of irregular sector, firm perfomance and the exit rate to the market. Three kinds of enforcement policy will be tested in the model: control, punish and legitimacy. The first policy is based on the number of inspectors present in the economy; the second is defined by the magnitude of punish; the third is measured by the social legitimacy. Our results show the negligible influence of control to enforce irregularity; the strong effect of punish on irregular sector with a high exit rate; the good effect of legitimacy policy in promoting regularity with a low output performance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Irregular sector; enforcement policies; exit rate; firm perfomance
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination

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