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Duman, Alper
Year of Publication: 
Series/Report no.: 
Working Papers in Economics 09/08
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.
Organizational forms
Formal and Informal Credit Markets
F21, O17
Document Type: 
Working Paper
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