Informal markets in developing countries 0195040880

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10415,2046

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O^-SHAUGHNESSY LIBRARY COLLEGE OF ST. THOMAS ST. PAUL. MN 55.105

In developing countries, the poor, just like the affluent, have to make difficult economic decisions. Their decisions, however, are made not in stores, corpo¬ rations, or stock exchanges, but through informal markets—household econom¬ ics, swapping, or the use of common lands—where formal legal norms never penetrate. Informal Markets in Developing Countries is an examination of these in¬ formal economic institutions of the poor. It looks at how they survive and whether the benefits of economic growth trickle down to them. It also examines what their stakes are in the economic system as a whole. Most economic studies of poverty have concentrated on quantifying the size and composition of populations below the poverty level. By contrast, Jagannathan seeks to conceptualize his answers in the tradition of positive economics, provid¬ ing a deeper understanding of several qualitative dimensions of poverty and economic development. Examining the importance of person¬ alized interchanges between transactions in developing countries, Jagannathan argues for the need to refashion the paradigms underlying theories of devel¬ opment by highlighting the importance of informal institutional arrangements in production and exchange. He also uses some concepts of positive economics to explain how informal contracts are put to productive and unproductive use. Based on in-depth observations made during his fifteen years in West Bengal as an official in the Indian Administra¬ tive Service, Jagannathan’s analysis raises several policy issues important to social scientists interested in economic devel¬ opment;

About the Author N. VIJAY JAGANNATHAN, who holds a Ph.D. from Boston University, has been a consultant with the World Bank, and is currently Secretary of the Cal¬ cutta Metropolitan Development Au¬ thority. In his present assignment he is responsible for one of the largest devel¬ opmental programs for the urban infor¬ mal sector.

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Index

INDEX

Abusus, 31 Administrative externalities, 43 Adverse selection in informal markets, 36n Advertising and social assets, 80, 89n Alchian, 7 Attached labor, 48

Bardhan, 39 Barter, 87 Basic Needs strategy, 122 Behavioral relations in economic literature, 6-8. See also Corruption; Informal contracts; Social assets Ben Porath, 7 Berry, 88 Bidi industry of Murshidabad, 33 Binswanger, 7 Bombay, 69

Calcutta, 62, 64, 69, 76n, 77n California Gold Rush, 17 Circular migration, 101-2, 106n Clans, 27 Coase, 25 Cocoa in Ghana, 5 Contracts, 89n and conventions, 22n general bilateral, 15. See abo Informal contracts, in rural labor markets general multilateral, 15. See abo Peanut seller model in rural areas, 21 simple bilateral, 15, 81-82 simple multilateral, 15, 80—81 in urban areas, 21 Conventions, 22n, 23n, 26, 32, 59, 124 and migration in Africa, 106n Corruption, 8, 30, 112—13, 123. See abo Defrauding opportunities; Rent-seeking opportunities

137 Credentials and social assets, 82 Credit in rural areas, 50—51 Credit in urban areas, 68-69

Daily wage labor, 49 Defrauding opportunities, 111-12, 114-15 Demsetz, 7 Developmental functions, 109 Diffuse urbanization, 70-71 Doeringer, 81 Durgapur, 52

Education and social assets, 81—82 Enforcement of property rights, 19-20, 24n, 43, 73-74 Entitlements and migration, 99101 Exchange entitlements, 11, 22n Externalities, 18, 34 Extralegal property rights, 12-13. See abo Social assets Extrapolation principle, 29

Eamily, as a governance structure, 84, 88 Eamine and entitlements, 100-101 Eei, 35 Eree rider problem, 16-17, 23n, 42 Euture property rights, 50-51, 87

Gezira Scheme, 33 Goodwill, 80 Governance structure, 84—89

Harris-Todaro model, 92 House, 70 Human capital. See Simple bilateral contracts

Ibadan, 65

138

INDEX

ILO, 58 Industrial organization literature, 7 Informal contracts, 5, 15-17 in rural credit markets, 49-52 in rural labor markets, 44-49 in urban labor markets, 66—68 Institutionalization, 26 Institutions, relevance of Western experience, 3 Intangible property rights. See Extralegal property rights Interlinked contracts. See Informal contracts Interlocked markets, 38-41 Internalization, 26 Involuntary migration, 95—96

Jain, 114

Krueger, 109

Labor markets, 20, 22 in urban informal sector, 66-68. See also Informal contracts Labor power, 85—86 Landa, 27 Lewis, 35 Liebenstein, 7 Locational rents in cities, 60-65. See also Peanut seller model

Marginal productivity theory, 55n,

88

Neoclassical economics, 3, 86, 89

Organized sector, 4. See also Simple bilateral contracts; Simple multilateral contracts

Patron-client relations, 26-27 Peanut seller model, 71-76 Piore, 81 Poliak, 7, 84 Primary labor markets, 82 Property, distinction between tangible and intangible, 12—13 Property rights, 12 and corruption systems, 112, 116 creation through informal contracts, 15—17 existing literature, 18—19 in a primitive society, 23n Public policy and social assets, 29-30, 122-23 Pull migration, 106n Push migration, 106n

Ranis, 35 Reciprocity, 88 Rent seeking, 7, 8n, 13, 71, 90n, 119 and restrictions, 17 in cities. See locational rents in rural areas, 43, 51. See also Restriction-seeking governance Rent-seeking opportunities, 10911, 114

Market governance, 84 Markets, description of, 83-84 in developing countries, 3 Marxian analysis, 6, 35, 89 Mean-variance model of migration, 97-99, 102-5 Mexico City, 65

Restriction-seeking governance, 88 Risks in a farm economy, 27-28 Rosenzweig, 7 Rudra, 39

Multiplex relations, 23n. See also General bilateral contracts; General multilateral contracts

Rural sector. See Villages in developing countries Rural-urban migration, 93-94

Resource endowments of rural poor, 45-48

INDEX

Schlesinger, 42 Screening, 36n. See also Adverse selection in informal markets; Credentials and social assets Secondary labor markets, 82 Semiattached labor, 48-49, 55n Seoul, 64 Simplex relations, 23n. See also Simple bilateral contracts Slum housing, 69 Social assets, 10-12, 17-19, 30-32, 84-87 and economic growth, 119-20 and inflation, 120-21 Social entitlements. See Social assets Social space, 83 and rural-urban migration, 94— 95 Social usufructuary rights, 31 legalization of, 121-22 Status, distinction from contract, 5

Technology and social assets relevance for rural farm sector, 28, 124 relevance for rural-urban migration, 101 relevance for urban informal sector, 67 Theory Z, 120 Tied rents, 5, 14. See also Informal contracts, in rural labor markets; Labor markets, in urban informal sector Traditional functions of

139 administration, 109-10 Transactions costs, 32-35 Transfers in public organizations, 113 Trilateral governance, 84 Types of migration, 94-95

Umbeck, 17 Unified governance, 84 Unorganized markets, 3-6 Urban employment system, 82 Urban informal sector, 18 institutional features, 58—60 prospects, 69-71 Urbanization and poverty, 91-94 Usus, 30 Usus fructus, 30-31

Veblen, 12 Villages in developing countries, 41-44, 53n contrast with urban informal sector, 58-60 Voluntary migration, 95-96

Wade, 108 Wage advances, 39-40, 54n. See also Tied rents Weizsacker, 29 Williamson, 55n, 84-85

X-efficiency, 7, 55n, 78n

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