Research Experiment to Measure the Demand for Formality

This was a Research project examining the demand for formality among informal unregistered businesses. A baseline and three follow-up surveys of over 500 informal enterprises in Colombo and Kandy districts were carried out in this survey. KCG also supervised the administering of registration information treatment and cash treatment to randomly selected enterprises.


“The Demand for, and Consequences of, Formalization among Informal Firms in Sri Lanka” 

A field experiment in Sri Lanka provides informal firms incentives to formalize. Information about the registration process and reimbursement of direct costs does not increase registration. Payments equivalent to one-half to one month (alternatively, two months) of the median firm’s profits leads to registration of around one-fifth (alternatively, one-half ) of firms. Land ownership issues are the most common reason for not registering. Follow-up surveys 15 to 31 months later show higher mean profits, but largely in a few firms that grew rapidly. We find little evidence for other changes in behavior, but formalized firms express more trust in the state.

Published in American Economic Journal: Applied Economics Vol. 5, No. 2, 2013, pp. 122-150. See:
A previous version of the paper is available as (1) NBER Working Paper No. 18019, April 2012  (downloadable from  ) and (2) IZA Discussion Paper No 6442, March 2012 (downloadable from:   (direct link: and (3) World Bank Policy Research Working Paper No. 5991, March 2012 (downloadable from