Jaramillo, M. (2013). Is there demand for formality among informal firms? Evidence from microfirms in downtown Lima (Avances de Investigación N° 13). Lima: GRADE.

Using experimental data obtained from microenterprises in Cercado de Lima, this study analyses the demand for formalisation, i.e. obtaining an operating licence. The study’s findings are paradoxical: most firms report more disadvantages than advantages of being informal but when encouraged to obtain a licence, only one in four firms accepts the incentive. Thus, for some firms formalisation may be undesirable at any cost, which may be associated with the recurrent costs of formalisation, the perceived low value of the benefits of formalisation and the limited growth prospects of these firms. An additional implication is that self-reporting of willingness to formalise or reasons for not formalising are unreliable.