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Informal firms in developing countries: entrepreneurial stepping stone or consolation prize?

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  • John Bennett

Abstract

We analyse potential dynamic benefits for a firm from having the option of adopting informal status. Informality may be a stepping stone, without which formality might never be achieved. This result obtains for a broad range of realistic parameter values, suggesting a potential dynamic case for government support of informal firms. Informality may alternatively play a converse role as a consolation prize, a firm only entering an industry (formally) because it recognizes that if profitability is disappointing, it can switch to informality.
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  • John Bennett, 2010. "Informal firms in developing countries: entrepreneurial stepping stone or consolation prize?," Small Business Economics, Springer, vol. 34(1), pages 53-63, January.
    • Handle: RePEc:kap:sbusec:v:34:y:2010:i:1:p:53-63
    DOI: 10.1007/s11187-009-9194-6
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    More about this item

    Keywords

    Entrepreneurship; Informality; O17; M21; D2; L26;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • D2 - Microeconomics - - Production and Organizations
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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