Social Construction of Boundaries in the Context of the Official and Unofficial Economies

Abstract

This research draws from institutional, social constructionism, and stakeholder theories to describe how the boundaries of legality and legitimacy create official and unofficial economies. The theoretical model is also used to explain how boundaries shift and are crossed. Individual business activities are the unit of analysis for this work. We envision hierarchically positioned stakeholder groups as the creators of the boundaries of legality and of social acceptability. The activities in the unofficial economy fall into either the informal (illegal but socially acceptable) or the criminal (illegal and socially unacceptable) quadrants; activities in the official economy are either in the formal (legal and socially acceptable) or the marginal (legal but socially unacceptable) quadrants. The interdependence among the four quadrants highlights the importance of theoretically specifying how boundaries around each form, shift, and are crossed, leading to changes in the size and scope of each quadrant in developed, emerging, and developing countries.