According to research by Rafael La Porta of Tuck School of Business at Dartmouth and Andrei Shleifer of Harvard University, in developing countries, the average firm in the informal sector, or underground economy, employs 4 workers as opposed to 126 workers employed by the average firm in the formal sector.

a. What is the informal sector, or underground economy?

b. Why would we expect firms in the informal sector to be so much smaller than firms in the formal sector?