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Unformatted text preview: 1 De Soto Notes Chapter 3: Informal Trade: Recall Harris-Todaro: Informal sector is default outcome of unemployed urbanites. In- formal businesses must operate outside the law, most are very small in scale. In particular, most have minimal capital stock. HT view & these are bad jobs, sort of the safety net for unemployed migrants. Policy discussions revolve around how to shut this down (and increase formal employment) De Soto wants to: document what informal sector jobs are. Discuss why they pay so poorly. Discuss why people would choose to become an informal entrepreneur vs. a formal one. Is this choice inconsistent with HT? in HT, you are forced into the informal sector, De Soto nds it is a rational choice. But, de Soto is comparing being an entrepreneur in the informal sector vs. an entrepreneur in the formal sector. HT is basically comparing being a wage worker to being an entrepreneur. What types of activities characterize the informal sector? This section focuses on trade, nds that 60% sell food products, 17% personal accessories, 14% services, 9% home/o ce supplies. In a lot of countries, see these plus things like household manufacturing (e.g. mak- ing clothes), domestic work. All require very low capital (transportation is often informal too, an exception to this rule). 90% of informals the right age to be in LF, in Peru, 54% female. Usually informal trade is based in poor areas. In this sample, per capita income from street vending is high &$58/mo, above minimum wage. 1 Types of Informal Trade: 1): Street Vending A): Itinerant vending. very small scale, mobile venders. Often, venders with little knowledge must begin as intinerant venders, then can gradually learn a speci&c route on which to sell, develop relationships with suppliers and customers, which might allow larger scale, &xed locations operations. Stocks are very limited as you must carry most or all of your stocks with you as you walk around. B): Fixed location vending: venders make a decision to establish shop in a particular area. Concerns are same as any business customer volume, competition. Informality means that you have to worry about extralegal behavior of existing vendors, make agree- ments. Some property rights are recognized, but there is a constant threat of eviction, so: little incentive to invest in the shop. Also, strong incentive to work long hours, or share location with other vendors, so that someone is there to protect the location and property.location with other vendors, so that someone is there to protect the location and property....
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- Fall '10