Asset Inequality, Relative Efficieny of Formal Credit Markets and Choice of Organizational Form

Alper Duman ()

No 908, Working Papers from Izmir University of Economics

Abstract: We model the organizational choice of a small firm given formal and informal credit market parameters. We observe a positive relationship between the size of the informal sector and the spread across countries. We take spread as relative inefficiency of the formal credit markets. Furthermore we also witness a convex positive relationship between the start-up costs and the size of the informal sector. The start-up costs are extremely important sunk costs for the micro and/or small enterprises. We argue that both the spread and the start-up costs are important parameters for the small enterprises in terms of the organizational choice. We provide a simple model to account for these main empirical regularities.

Keywords: Organizational forms; Formal and Informal Credit Markets (search for similar items in EconPapers)
JEL-codes: F21 O17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent
Date: 2009-12
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