The Politics of Order in Informal Markets: Evidence from Lagos

Property rights are important for economic exchange, but in many parts of the world, they are not publicly guaranteed. Private market associations can fill this gap by providing an institutional structure to enforce agreements, but with this power comes the ability to extort from group members. Under what circumstances do private associations provide a stable environment for economic activity? The author uses survey data collected from 1,179 randomly sampled traders across 199 markets in Lagos, Nigeria, and finds that markets maintain institutions to support trade not in the absence of government, but rather in response to active government interference. The author argues that associations develop protrade policies when threatened by politicians they perceive to be predatory and when the organizations can respond with threats of their own. The latter is easier when traders are not competing with one another. To maintain this balance of power, an association will not extort; it needs trader support to maintain the credibility of its threats to mobilize against predatory politicians.