Clientelism and Violence: The Politics of Informal Economy

Large informal economy and high violence in daily political life are two demarcating features of Less Developed Countries (L.D.C.s). Is there a causal link? A possible channel is political clientelism, which arises from the need to protect the livelihood of informal sector workers in a semi-legal environment. Violence is a tool to signal the de facto political strength of the parties to the informal sector workers. The formal sector workers dislike violence and vote by the overall performances of the parties. In our one period static framework, two parties compete for the office, and clientelism leads to strategic voting in the informal sector. We model the coordination in strategic voting by Global games. This paper formally establishes the relationship between political violence and the informal sector, also explaining the puzzle of why well-performing incumbents engage in high violence in a democracy, with discussions on evidence from India.