There has been a global rise of shadow entrepreneurship in sectors such as education (certificates), finance (for easy loans), the betting economy (online games) and healthcare (e-pharmacies).
Shadow entrepreneurs are those who do not register their businesses but manage to sell legitimate goods and services. These entrepreneurs evade taxes and operate outside the reach of government authorities.
When there is such a significant supply and demand shock as COVID-19, a new market may open up to handle the inward shift of markets due to rising prices and decreasing quantities available. Shadow entrepreneurs offering the appeal of technology-enabled services can help eliminate the associated distortions and frictions in the market by offering complementary services that traditional service providers may have limited access to or that consumers may not be able to access due to lock restrictions to have. This could lead to a redistribution of old consumers to these new markets provided by technology and the entry of new consumers. While the markets can correct themselves on the principles of the invisible hand, the initial surge in demand and the resulting lock-in effects could mean greater market power for early movers.
strict quality monitoring would be essential. This needs to be complemented by punishing violations with a prison sentence, restricting services and resulting severe consequences. Those shadow companies that meet these requirements are cordially invited to join the predominant mode of service provision with non-shadow companies. In the absence of regulation, however, the situation could spiral out of control in the face of the need to monitor the distribution of public goods for developing countries.
The big question, however, is whether governments around the world will pay attention given the stress and fatigue of trying to deal with the virus. If not, with shadow entrepreneurship growing around the world, we may face the adverse welfare consequences of COVID-19 that do not come from COVID-19.