In addition, as in Waller, Verdier, and Gardner (2002), these firms receive an idiosyncratic return [epsilon] on investment, which is distributed uniformly over the unit interval, that is, [epsilon] ~ U[0,1].
the critical value of the idiosyncratic return on formal sector investment), the proportion of firms in the informal sector is given by
2] [greater than or equal to] [(1 - m) V + [(1 - [alpha]) V] or, if its idiosyncratic return to locating in the formal sector satisfies
13) We demonstrate in the Appendix that, given [epsilon], the idiosyncratic return to investment in the formal sector, and regulatory activity in the shadow economy, the presence of the shadow economy is inimical to the formal sector and social welfare.
The evidence of Fama and French (2004) is consistent with the explanation that changes in the idiosyncratic returns
volatility could be, in part, due to trends in the entry and exit of firms into the markets.