ABSTRACT
This chapter attempts to interpret the dynamics of the underground economy in a transforming environment by emphasising the role of institutions in enforcing the rules of the game and the phenomenon of strain. A main idea is that an underground economy emerges as a means for the system to diffuse its internal strain. Thus, an underground economy operates as a homeostatic mechanism which helps the system survive temporarily - as in the case of the command economy - and affects the structure of output according to consumers' preferences, in general. In the same vein the emergence of unofficial activities can be judged in an overregulated system be it marketbased.
