Abstract
Informal markets permeate economies worldwide. Informality coexists with formal market structures in developing and developed countries alike, making assets illiquid and locking up potential profits. What does informality look like? It has a very human face. Picture Latin America, where farmers sell produce on a side street without a license. Picture Europe where new, often undocumented immigrants hawk items at outdoor bazaars or at street intersections in large cities whenever traffic is stopped. Picture New York City, where drivers without a hackney license use their own cars as taxis after finishing their “regular” job. Picture “transaction middle men,” ubiquitous in Latin America, where they usually are referred to by the elegant Spanish name of tramitadores, who are hired by wealthier citizens for help with seemingly simple tasks such as renewing a passport or obtaining a government license. Picture New Orleans, where some residents reportedly refused to leave their homes after hurricane Katrina hit in the fall of 2005 because they did not have official documentation proving their ownership. Many transactions to transfer, buy or sell properties in the city were not registered but kept in personal notarized contracts, which were in danger of being lost in the floodwaters.
Any person ought to have the right to enjoy the fruits of his own work.
— David Hume
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Notes
Institutional Economics and New Institutional Economics define transactions costs as “the costs of resources utilized for the creation, maintenance, use and change of institutions and organizations” (Erik G. Furubotn and Rudolf Richter (1997), Institutions and Economic Theory — The Contribution of the New Institutional Economics, Ann Arbor: University of Michigan Press, p. 40).
Hernando de Soto (2000) The Mystery of Capital: Why Capitalism Triumphs in the West and Tails Everywhere else, New York: Basic Books, p. 35.
Joe Wallis and Brian Dollery (1990) Market Tailure, Government Tailure, Leadership and Public Policy, New York: St. Martin’s Press.
Mercantilist economies are characterized by high regulation, strong bureaucratic control, and a limited number of market players. See, for example, Eli F. Heckscher (1955) Mercantilism, London: George Allen and Unwin
Ernst F. Söderlund. (Originally published as Merkantilisment: Ett ledi den ekonomiska politikens historia, Stockholm: P.A. Norstedt and Söner, 1931).
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© 2007 Elena Panaritis
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Panaritis, E. (2007). Informality and Unreality. In: Prosperity Unbound. Palgrave Macmillan, London. https://doi.org/10.1057/9780230596221_1
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DOI: https://doi.org/10.1057/9780230596221_1
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