Kapoor, Muditle Blanc, David2012-03-302012-03-302008Regional Science and Urban Economics01660462https://hdl.handle.net/10986/5895In this paper, we analyze a household's decision to invest in informal (illegal) housing in developing countries. Using a simple model of housing supply, we show that the difference in the rates of return on housing investment in the formal and informal sectors reflects the additional risk associated with the latter. Using household survey data from Pune (a large city in India), we estimate this risk premium in the city to be approximately 22%, or 150 basis points. We use our approach to estimate the informal risk premium for cities in other countries based on results from previous studies.ENPersonal Finance D140Illegal Behavior and the Enforcement of Law K420Microeconomic Analyses of Economic Development O120Formal and Informal SectorsShadow EconomyInstitutional Arrangements O170Economic Development: Regional, Urban, and Rural AnalysesTransportation O180Urban, Rural, and Regional Economics: Housing Demand R210Journal ArticleWorld Bank