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Asset Inequality, Relative Efficieny of Formal Credit Markets and Choice of Organizational Form

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  • Alper Duman

    (Department of Economics, Izmir University of Economics)

Abstract

We model the organizational choice of a small firm given formal and informal credit market parameters. We observe a positive relationship between the size of the informal sector and the spread across countries. We take spread as relative inefficiency of the formal credit markets. Furthermore we also witness a convex positive relationship between the start-up costs and the size of the informal sector. The start-up costs are extremely important sunk costs for the micro and/or small enterprises. We argue that both the spread and the start-up costs are important parameters for the small enterprises in terms of the organizational choice. We provide a simple model to account for these main empirical regularities.

Suggested Citation

  • Alper Duman, 2009. "Asset Inequality, Relative Efficieny of Formal Credit Markets and Choice of Organizational Form," Working Papers 0908, Izmir University of Economics.
    • Handle: RePEc:izm:wpaper:0908
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    References listed on IDEAS

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    1. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 1-37.
    2. Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 663-691.
    3. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
    4. Straub, Stéphane, 2005. "Informal sector: The credit market channel," Journal of Development Economics, Elsevier, vol. 78(2), pages 299-321, December.
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    More about this item

    Keywords

    Organizational forms; Formal and Informal Credit Markets;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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