The Politics of Order in Informal Markets: How the State Shapes Private Governance

168 Pages·2021·2.937 MB·English

by  Shelby Grossman

ThePoliticsofOrderinInformalMarkets
Property rights are important for economic exchange, but many governments
don’tprotectthem.Privatemarketorganizationscanfillthisgapbyproviding
aninstitutionalstructuretoenforceagreements,butwiththispowercomesthe
abilitytoextortgroupmembers.Underwhatcircumstances,then,willprivate
organizations provide a stable environment for economic activity? Based on
market case studies and a representative survey of traders in Lagos, Nigeria,
thisbookarguesthatthreatsfromthegovernmentcanforceanassociationto
behave in ways that promote trade. The findings challenge the conventional
wisdom that private good governance in developing countries thrives when
the government keeps its hands off private group affairs. Instead, the author
argues, leaders among traders behave in ways that promote trade primarily
becauseofthethreatofgovernmentintrusion.
Shelby Grossman is a Research Scholar at the Stanford Internet Observatory.
SheholdsaPh.D.inGovernmentfromHarvardUniversity.
CambridgeStudiesinEconomics,Choice,andSociety
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TimurKuran,DukeUniversity
PeterJ.Boettke,GeorgeMasonUniversity
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ThePoliticsofOrderinInformalMarkets:HowtheStateShapesPrivateGovernance
The Politics of Order in Informal Markets
How the State Shapes Private Governance
SHELBY GROSSMAN
StanfordUniversity,California
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Informationonthistitle:www.cambridge.org/9781108833493
DOI:10.1017/9781108984980
(cid:2)c CambridgeUniversityPress2021
Thispublicationisincopyright.Subjecttostatutoryexception
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noreproductionofanypartmaytakeplacewithoutthewritten
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Firstpublished2021
AcataloguerecordforthispublicationisavailablefromtheBritishLibrary.
LibraryofCongressCataloging-in-PublicationData
NAMES:Grossman,Shelby,author.
TITLE:Thepoliticsoforderininformalmarkets:howthestateshapes
privategovernance/ShelbyGrossman,StanfordUniversity,California.
DESCRIPTION:1Edition.|NewYork:CambridgeUniversityPress,2021.|
Series:Cambridgestudiesineconomics,choice,andsociety|Includes
bibliographicalreferencesandindex.
IDENTIFIERS:LCCN2021014522|ISBN9781108833493(hardback)|ISBN
9781108984713(paperback)|ISBN9781108984980(ebook)
SUBJECTS:LCSH:Informalsector(Economics)–Developingcountries.|
Privatecompanies–Developingcountries.|Businessand
politics–Developingcountries.|Economicpolicy–Developingcountries.
|BISAC:POLITICALSCIENCE/PublicPolicy/EconomicPolicy|POLITICAL
SCIENCE/PublicPolicy/EconomicPolicy
CLASSIFICATION:LCCHD2346.5.G762021|DDC381–dc23
LCrecordavailableathttps://lccn.loc.gov/2021014522
ISBN978-1-108-83349-3Hardback
CambridgeUniversityPresshasnoresponsibilityforthepersistenceoraccuracyof
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Contents
ListofFigures pageviii
ListofTables ix
Preface xi
Acknowledgments xii
1 Introduction 1
1.1 WhyThesePrivateLeadersMatter 3
1.2 The Argument: How Threats of State Interference Sustain
PrivatePro-TradePolicies 5
1.3 BroaderImplications 9
1.4 AdditionalFactorsThatMayShapePrivateGoodGovernance 10
1.5 TheContext:Lagos 11
1.6 MethodologicalApproach 12
1.7 OverviewoftheBook 14
1.8 SummaryofFindings 15
2 MarketAssociations:AnOverview 17
2.1 MarketsandMarketAssociationsinDevelopingCountries 18
2.2 HistoryofPoliticsandMarketsinLagos 21
2.3 ContemporaryLagosMarketAssociations 23
2.4 Conclusion 33
3 ConductingaRepresentativeSurveyofInformalTraders 34
3.1 SurveyingInformalTraders:SamplingandRecruitment 36
3.2 PolicingtheSamplingStrategyandIncomingData 40
3.3 DefiningMarketAssociationMembership 42
3.4 MeasuringFrictionstoSorting 43
3.5 SummaryStatistics 44
3.6 Conclusion 46
4 A Calm Sea Does not Make a Good Sailor: A Theory of Private
GoodGovernance 49
4.1 CritiquesofLiterature 50
v
vi Contents
4.2 ProvisionofPrivateTrade-PromotingPolicies 54
4.3 Competition 60
4.4 CorePredictions 61
4.5 Collusion 61
4.6 RelationalContracting 63
4.7 AlternativeExplanations 64
4.8 Conclusion 66
5 GovernmentThreatsandGroupLeaderStrength 68
5.1 AMarketWhereCitizensArrestNormViolators:TheCase
ofOkeArin 70
5.2 “IDon’tKnowWhatTheyAreUsingtheMoneyFor”:The
CaseofEbeEbe 76
5.3 “They Are Nonchalant”: The Case of Unengaged Market
LeadersinDabiri 78
5.4 “Our Association Here na for Decoration”: The Case of
DestinyAssociation 83
5.5 AlternativeSourcesofMarketGoodGovernance 87
5.6 Conclusion 91
6 Business is Secret: Government Threats and Within-Group
Competition 92
6.1 Data 93
6.2 Evidence 95
6.3 AssessingAlternativeExplanationsofPrivate
Governance 103
6.4 Conclusion 109
7 PrivateGroupsinComparativePerspective 110
7.1 SummaryofBook 111
7.2 When and Where Will State Threats Motivate Strong
LeaderstoPromoteTrade? 113
7.3 BroaderImplications 120
7.4 PrivateGovernanceandGroupMemberBusiness
Outcomes 122
7.5 ShiftingEquilibria 122
7.6 PrivateGovernanceandtheEconomy 124
A AppendixtoChapter2–MarketAssociations:AnOverview 125
A.1 OrganizationofInformalTradeinLagos 125
B AppendixtoChapter3–ConductingaRepresentativeSurveyof
InformalTraders 127
B.1 ListofMarketAssociationsintheSurvey 127
C Appendix to Chapter 4 – A Calm Sea Does not Make a Good
Sailor:ATheoryofPrivateGoodGovernance 130
C.1 RelationalContracting 130
Contents vii
D AppendixtoChapter6–GovernmentThreatsandWithin-Group
Competition 131
D.1 SurveyQuestions 132
D.2 NoteonLandType 132
D.3 DescriptiveStatistics 133
D.4 SocialDesirabilityBias 135
E AppendixtoChapter7–PrivateGroupsinComparativePerspective 136
Bibliography 138
Index 145
Figures
1.1 Howpoliticianthreatsleadtoprivatepro-tradepolicies page7
2.1 Markets,localgovernments,andLagosstate 24
2.2 Excerpt of a Lagos market association constitution: revenue
collection 25
2.3 ExcerptofaLagosmarketassociationconstitution:sanctions 25
2.4 OkeArinMarketconstitution 26
2.5 SatelliteimageofTradeFair.Source:GoogleEarth 27
2.6 Baloguncommercialarea,LagosIsland 28
2.7 State-level financial dependence on federal allocations (%),
2008 30
3.1 MapofpartofAlabaInternationalMarketforsampling 37
3.2 Photooftwotraderswhoparticipatedinthe2015survey 39
3.3 This is a map of Lagos, with circles plotted at the location of
the199marketassociationsrepresentedinthesurvey 44
6.1 Traderschoosetolocateinmarketsformanyreasons,severalof
whichareunrelatedtowhetherthemarketisconducivetotrade 106
6.2 MarketleadergovernanceonLagosIsland 107
A.1 TheorganizationofinformaltradeinLagos 126
D.1 Surveyquestionsusedinthepaper 132
viii