Who Purchases From the Informal Economy and Why?

In recent decades scholars have acknowledged that transactions in the informal economy have not vanished with modernization and industrialization as expected but rather remain an important contemporary aspect of overall production and consumption across the world, in both developing and developed countries. Yet little is known about the profile of the consumers in this realm or what drives them to purchase from the informal economy. A systematic review of the literature investigating consumption in the informal economy reveals a severely underdeveloped area of consumer studies with significant gaps in terms of its theoretical approaches, methods and regional coverage. The findings of the existing literature is that multiple motives are used by consumers for justifying their purchases in the informal economy beyond the dominant simplistic view that they do simply for financial gain or for a lower price (namely, it identifies social ends and failures in formal market provision in terms of availability, speed of provision and quality). The outcome is a recognition that responsibility to reducing this phenomenon with negative effects on governments, businesses, workers and consumers lies not just with public authorities but also practitioners who need to correct the failures in formal market provision. The significant gaps identified in the literature are then used to highlight a comprehensive future research agenda, which includes the need for the development of an institutionalist theoretical perspective when explaining consumers' participation in the informal economy and social marketing interventions.

Explaining consumer motives to purchase in the informal economy.

Usually, studies on the informal economy focus mainly upon those working in the informal economy (supply side). However, many exchanges in the informal economy are initiated by purchasers asking how much a good or service costs if paid cash in hand. Therefore, the aim of this paper is to advance understanding of who make purchases in the informal economy and the reasons of the consumers making these purchases (demand side). Two potential explanations are evaluated. Firstly, consumers are explained as rational economic actors seeking a more convenient deal or profit maximisation (i.e., lower price or better value for money), making purchases from the informal economy due to the lack of availability of the product or service they need on the formal market, or they make such purchases involuntarily, due to the lack of perfect information necessary to make a fully rational economic decision when purchasing. Secondly, the consumers are portrayed as social actors pursuing community help. Using a multilevel mixed-effects logistic regression analysis on a 2019 Eurobarometer interviews in 27 EU member states and the UK reveal how the prevalence of these motives significantly varies across populations and regions. The theoretical and policy implications of the findings are discussed in the concluding section.