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

Informal firms in developing countries: entrepreneurial stepping stone or consolation prize? The potential dynamic benefits of a firm having the option to adopt informal status are analysed. Informality may be a stepping stone, without which formality may never be achieved. This result is obtained 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, with a firm only entering an industry (formally) because it recognizes that if profitability is disappointing, it can switch to informality. However, this result is obtained for a range of parameter values so narrow as to be of no practical significance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

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

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Publisher
Springer US
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC.
Subject
Business and Management; Management; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1007/s11187-009-9194-6
Publisher site
See Article on Publisher Site

Abstract

The potential dynamic benefits of a firm having the option to adopt informal status are analysed. Informality may be a stepping stone, without which formality may never be achieved. This result is obtained 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, with a firm only entering an industry (formally) because it recognizes that if profitability is disappointing, it can switch to informality. However, this result is obtained for a range of parameter values so narrow as to be of no practical significance.

Journal

Small Business EconomicsSpringer Journals

Published: May 5, 2009

References

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