Some Microeconomic Aspects of Informal Sector Enterprises: Field-Based Evidence from West Bengal

Despite voluminous literature, proper characterisation of 'informal sector' remains an open question. Analyses of production organisation and price formation mechanisms could provide useful insights. Identifying the motive of participation in such diverse activities is also of interest. We have conducted a case study involving diverse locations and variety of informal activities, with a view to identifying the role of community. Community collaboration and surveillance, mutual faith and trust appear to play a significant part. Prices are set through an admixture of market forces, bargaining, hierarchy of contracts and community/group intermediation in such a way that a socially determined standard of living is attained. When intense competition restricts prices from rising, the micro-entrepreneurs work hard, diversify their business and find out new opportunities. This departs somewhat from the orthodox theory of resource allocation. The satisfaction of 'need', rather than profit maximisation, seems to be the mainspring of many micro-entrepreneurs surveyed.