Social influence, agent heterogeneity and the emergence of the urban informal sector

• Published in: Physica A Vol. 391; no. 4; pp. 1563 - 1574
• Main Authors: García-Díaz, César, Moreno-Monroy, Ana I.
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 15.02.2012
• Subjects: Adaptation and self-organizing systems; Agent-based modeling; Buffers; Heterogeneity; Inhabitants; Migration; Physics and society; Rural; Rural–urban migration; Statistical mechanics; Strength; Urbanization; Agent-based modeling; Rural–urban migration; Adaptation and self-organizing systems; Physics and society
• ISSN: 0378-4371
• DOI: 10.1016/j.physa.2011.08.057

We develop an agent-based computational model in which the urban informal sector acts as a buffer where rural migrants can earn some income while queuing for higher paying modern-sector jobs. In the model, the informal sector emerges as a result of rural–urban migration decisions of heterogeneous agents subject to social influence in the form of neighboring effects of varying strengths. Besides using a multinomial logit choice model that allows for agent idiosyncrasy, explicit agent heterogeneity is introduced in the form of socio-demographic characteristics preferred by modern-sector employers. We find that different combinations of the strength of social influence and the socio-economic composition of the workforce lead to very different urbanization and urban informal sector shares. In particular, moderate levels of social influence and a large proportion of rural inhabitants with preferred socio-demographic characteristics are conducive to a higher urbanization rate and a larger informal sector. ► Migration based on wage differentials and social influence leads to informality. ► Social influence and preferential hiring explain informal sector size differences. ► Moderate social influence significantly increases the urban informal sector. ► Under strong social influence urbanization and informality rates are lower.