@TechReport{iza:izadps:dp2998,
            	author={Basu, Arnab K. and Chau, Nancy H. and Kanbur, Ravi},
            	title={Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws},
            	year={2007},
	month={Aug},
            	institution={Institute of Labor Economics (IZA)},
            	address={Bonn},
            	type={IZA Discussion Paper},
            	number={2998},
            	url={https://www.iza.org/index.php/publications/dp2998},
	abstract={In many countries, non-compliance with minimum wage legislation is widespread, and authorities may be seen as having turned a blind eye to a legislation that they have themselves passed. But if enforcement is imperfect, how effective can a minimum wage be? And if non-compliance is widespread, why not revise the minimum wage? This paper examines a minimum wage policy in a model with imperfect competition, imperfect enforcement and imperfect commitment, and argues that it is the combination of all three that produces results which are consistent with a wide range of stylized facts that would otherwise be difficult to explain within a single framework. We demonstrate that turning a blind eye can indeed be an equilibrium phenomenon with rational expectations subject to an ex post credibility constraint. Since credible enforcement requires in effect a credible promise to execute ex post a costly transfer of income from employers to workers, a government with an objective function giving full weight to efficiency but none to distribution is shown, paradoxically, to be unable to credibly elicit efficiency improvements via a minimum wage reform.},
	keywords={dynamic consistency;minimum wage;non-compliance;equity and efficiency},
            }