Experimental data from microfirms in downtown Lima is exploited to analyse the demand for
formality, ie, obtaining an operating license. The results are paradoxical: most firms report
greater disadvantages than advantages of being informal, yet when encouraged to obtain
the license, only one out of four firms takes up the incentive. Thus, for some firms
formalisation may not be desirable at any cost. This is likely to be associated with the
recurrent costs of being formal, the low perceived value of the benefits of formalisation, and …