Abstract
How do firms choose between formal and informal strategies in emerging markets? While the existing literature focuses mostly on the effect of informality on firm outcomes, little research has been conducted on how these firms set strategies in response to their external environment. Using data on routes of minibus taxi operators in South Africa, we explore how the external environment informs this strategic choice. Through spatial and regression analysis, we find that firms choose over a spectrum of informality over time and space in response to demand and availability of public infrastructure. Investigating this phenomenon further through interviews with stakeholders throughout the minibus taxi industry, we find that these firms blend formal and informal strategies to maximize their profit-making potential in the face of insufficient infrastructure and economic and physical uncertainty.
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