We analyze the formality benefits through productivity-enhancing public goods. We document that: benefits from formality matter for firms’ optimal decisions; there is a disconnect between the objectives of maximizing formality versus welfare; this disconnect is mitigated under higher formality benefits.
Mendicino, C., & Prado, M. (2014). Heterogeneous Firms and the Impact of Government Policy on Welfare and Informality. Economics Letters, 124(1), 151-156. https://doi.org/10.1016/j.econlet.2014.04.018