In Simple Words
Think of business registration as paying an upfront toll fee to enter a paved highway. When cash flow is low, drivers remain on bumpy dirt roads. Providing a direct monetary grant at registration acts as a toll cash bonus that instantly offsets entry costs and incentivizes drivers to join the formal highway.
Informal firms in Sri Lanka
- Information and registration-cost reimbursement
- No clear registration increase
- Same support plus registration cash payment
- More firms registered
Sri Lanka field trial. Information arm also reimbursed registration costs. Cash levels combined; review gives no common absolute comparison rate.
See source →Study conditions — de Mel and colleagues, UK research archive ↗Research question
Informal business owners perceive formal registration as a net financial loss because immediate administrative registration costs outweigh uncertain future benefits.
Participants
Informal micro-enterprises in Sri Lanka (De Mel et al., 2013) and Benin (Benhassine et al., 2018).
Study Design
Randomized Controlled Trial (RCT) evaluating monetary transfer amounts against information-only controls.
Results
Direct monetary transfers equivalent to one or two months of median business profit significantly increased firm formalization rates, whereas informational talks produced zero impact.
Takeaway
Offer one-time direct cash transfers equal to 1-2 months of average business profit to informal micro-enterprises upon verified formal registration.
Source and citation
See source →Evidence in Labor Market Policies and Implications for Brazil: Informality
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Read alongside the research
Plain-English glossary
Original explanations, informed by the references below. Examples are illustrations, not data from the studies above. The research text stays unchanged.
- Median
The middle number after arranging the values from smallest to largest. If there are two middle numbers, use their average.
ExampleFor the values 2, 4 and 12, the middle value is 4. The median is 4.
NIST · Measures of location ↗Read more about median →- Randomized controlled trial
A study that uses chance, like drawing lots, to decide who receives each option being compared. Researchers compare the groups’ outcomes to estimate the effect of those options.
ExampleA lottery assigns volunteers to a training programme or a comparison group. Researchers then compare their outcomes.
GET-IT glossary · Randomized study ↗Read more about randomized controlled trial →