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Explaining consumer motives to purchase in the informal economy

Author

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  • Ioana Alexandra Horodnic
  • Colin Charles Williams
  • Jan Windebank
  • Adriana Zaiț
  • Claudia Ioana Ciobanu

Abstract

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.

Suggested Citation

  • Ioana Alexandra Horodnic & Colin Charles Williams & Jan Windebank & Adriana Zaiț & Claudia Ioana Ciobanu, 2021. "Explaining consumer motives to purchase in the informal economy," PLOS ONE, Public Library of Science, vol. 16(10), pages 1-22, October.
  • Handle: RePEc:plo:pone00:0258686
    DOI: 10.1371/journal.pone.0258686
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    References listed on IDEAS

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    1. Colin C. Williams, 2014. "Confronting the Shadow Economy," Books, Edward Elgar Publishing, number 15370.
    2. Colin C. Williams & Ioana A. Horodnic, 2015. "Explaining and tackling the shadow economy in Estonia, Latvia and Lithuania: a tax morale approach," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 15(2), pages 81-98.
    3. Merike Kukk & Karsten Staehr, 2014. "Income underreporting by households with business income: evidence from Estonia," Post-Communist Economies, Taylor & Francis Journals, vol. 26(2), pages 257-276, June.
    4. Schneider,Friedrich & Enste,Dominik H., 2016. "The Shadow Economy," Cambridge Books, Cambridge University Press, number 9781316600894, October.
    5. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
    6. Phuc Nguyen Canh & Christophe Schinckus & Su Dinh Thanh, 2021. "What are the drivers of shadow economy? A further evidence of economic integration and institutional quality," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 30(1), pages 47-67, January.
    7. Colin C. Williams & Friedrich Schneider, 2016. "Measuring the Global Shadow Economy," Books, Edward Elgar Publishing, number 16551.
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    Cited by:

    1. Colin C. Williams, 2023. "A Modern Guide to the Informal Economy," Books, Edward Elgar Publishing, number 18668.
    2. Burgstaller, Lilith & Feld, Lars P. & Pfeil, Katharina, 2022. "Working in the shadow: Survey techniques for measuring and explaining undeclared work," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 661-671.
    3. Ho Fai Chan & Uwe Dulleck & Jonas Fooken & Naomi Moy & Benno Torgler, 2023. "Cash and the Hidden Economy: Experimental Evidence on Fighting Tax Evasion in Small Business Transactions," Journal of Business Ethics, Springer, vol. 185(1), pages 89-114, June.

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