Research project examining
the measurement of profits in around 180 household-based retail trade micro-enterprises in the Kandy district.
RESEARCH PUBLICATIONS
“Measuring Microenterprise
Profits: Don’t ask how the sausage is made”
A large share of
the World's poor is self-employed. Accurate measurement of profits from
microenterprises is therefore critical for studying poverty and inequality,
measuring the returns to education, and evaluating the success of microfinance
programs. However, a myriad of problems plague the measurement of profits. This
paper reports on a variety of different experiments conducted to better
understand the importance of some of these problems, and to draw
recommendations for collecting profit data. In particular, we (i) examine how
far we can reconcile self-reported profits and reports of revenue minus
expenses through more detailed questions; (ii) examine recall errors in sales,
and report on the results of experiments which randomly allocated account books
to firms; and (iii) asked firms how much firms like theirs underreport sales in
surveys like ours, and had research assistants observe the firms at random
times 15–16 times during a month to provide measures for comparison. We
conclude that firms underreport revenues by about 30%, that account diaries
have significant impacts on both revenues and expenses, but not on profits, and
that simply asking profits provides a more accurate measure of firm profits
than detailed questions on revenues and expenses.
Published in Journal of Development Economics, Vol.
88, Issue 1, January 2009, pp. 19-31.
Previous version
of the paper is available as (1) World Bank Policy Research Working Paper No
4229, May 2007, downloadable from: http://econ.worldbank.org/ (direct link
to paper: http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2007/05/04/000016406_20070504134046/Rendered/PDF/wps4229.pdf
) and (2) BREAD Working Paper No. 143, March 2007, downloadable from: http://www.cid.harvard.edu/bread/abstracts/143.htm