Abstract:
Informal economy involving unrecorded, unregistered,
extra-legal activities employs majority of the work force
in the developing world. Such extra-legal existence of
informal production is facilitated through extortion by
agents of political forces in power. Also, extortion activi ties themselves constitute an informal segment. Full-scale
general equilibrium consequences of such institutions are
rarely discussed in the literature. We develop a well-spe cified general equilibrium model to explore the possible
consequences of reform. Economic reform may have an
expansionary effect on the number of extortionists.
Depending on capital mobility and factor intensity
assumptions informal output and informal wage may
increase
