1.Efficient Black Markets? 
Abstract:  This paper investigates analytically the welfare effects of black-market activities undertaken by firms to evade taxes.   The desirability of a black market is linked to the attributes of goods supplied by black-market firms.   The analysis identifies cases where a black market increases (reduces) the distortionary impact of taxation on the allocation of resources across the goods that the government is attempting to tax, leading to a welfare gain (loss).  (This paper is joint with Carl Davidson and Jay Wilson)

2.The Optimal Fine for Risk Neutral Offenders
Abstract:  In this paper, we present a series of well-known, slightly modified models in which all agents are risk neutral and there is only one level of illegal activity to be monitored and show that in each instance there are important cases in which the optimal fine lies below its maximal level.  In each model, firms with several creditors must decide whether to comply with some sort of government regulation.  Asymmetric information is present in that the agents with a claim on the firm’s assets cannot determine whether the firm is in compliance.  The final common feature is that at least one of the firm’s potential creditors cannot collect its payment until after the government has assessed and collected fines from convicted non-compliant firms.  In such a setting, we show that high firms may interfere with the firm’s ability to compensate this creditor.  Consequently, this creditor will demand a risk premium to compensate for the cases in which the high fine bankrupts the firm.  We show that this risk premium distorts the equilibrium outcome so that high fines carry with them a social cost – the deadweight loss associated with the distortion – and it is the presence of this social cost which keeps the Becker conundrum from emerging. (This paper is joint with Carl Davidson and Jay Wilson)

3.Tax Evasion as an Optimal Tax Device(forthcoming in Economics Letters)
Abstract:  It has been argued a black market, or "underground economy," might improve welfare by effectively allowing some economic activities to be taxed at lower rate than others, in a manner consistent with optimal tax rules.  We investigate this reasoning by introducing a black market into an economy where different goods are taxed at the same rate.  We present conditions under which the black market moves the economy closer to an optimal discriminatory tax system, where goods are taxed at different rates.  In some cases, the black market can be used to replicate this tax system. (This paper is joint with Carl Davidson and Jay Wilson)

4.Optimally Enforced Minimum Quality Standards
Abstract: In this paper we look at equilibrium in markets with minimum quality standards that are imperfectly enforced. We found a mix of three sub-markets. In the black market firms sell illegally low levels of quality to customers who willingly demand them. Just above the minimum lies a gray market, where legal levels of quality are sold at prices supported by implicit threats of illegally low quality. Finally, at the highest quality levels white market firms implicitly threaten to substitute minimum quality goods for the promised levels. In addition, there is at least one gap in the level of quality offered in the market and two levels of quality where customers of different tastes are bunched.Next, we showed that this mix of market must exist at the optimal policy. In particular, the fine for low quality production is just high enough (but no higher) to bring into existence a white market, and the probability of detection is low enough (that is, below one) to bring about black and gray markets. (This paper is joint with Carl Davidson and John. D. Wilson )