Institutions in Informal Markets

The central questions that motivate this work, concern with understanding how do informal markets function outside the formal contract and property rights framework, and in doing so, what kinds of institutions do these markets develop. I attempt to answer these questions through case studies of three markets in India, namely, footwear cluster in Agra, coal-mines mafia in Dhanbad, and sex work (prostitution) in New Delhi. Locating the study of informal markets and institutions in broad literature of law and development, the thesis advances policy suggestions that would be useful in a general context of developing countries and their unregulated markets. More than 90% of Indian workforce is informal, thus making it a very important economic impulse to be examined. Through primary fieldwork, I collect data in three Indian markets, and understand the micro-institutional framework that guides the functional order of transactions that lie ‘outside the law.’ In general, my findings reveal that every informal market is hinged on an intermediary, who in absorbing the otherwise high transaction costs at a price, affords stability to the market. For relevant policy interventions therefore, it is crucial that the intermediating institutions are examined carefully. At a general level, the thesis narrates the importance of understanding local institutions in presence of global blueprints of law reforms. If law is an effective tool for development, then it has to adequately appreciate the heterogeneous institutions located within the market frameworks.