Measuring Microenterprise Profits: Must We 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...

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Main Authors:	De Mel, Suresh, McKenzie, David J., Woodruff, Christopher
Format:	Journal Article
Language:	EN
Published:	2012
Subjects:	Labor Demand J230 Firm Performance: Size, Diversification, and Scope L250 Industrialization Manufacturing and Service Industries Choice of Technology O140 Economic Development: Financial Markets Saving and Capital Investment Corporate Finance and Governance O160 Microdata Set
Online Access:	http://hdl.handle.net/10986/5594

id	okr-10986-5594
recordtype	oai_dc
spelling	okr-10986-55942021-04-23T14:02:23Z Measuring Microenterprise Profits: Must We Ask How the Sausage Is Made? De Mel, Suresh McKenzie, David J. Woodruff, Christopher Labor Demand J230 Firm Performance: Size, Diversification, and Scope L250 Industrialization Manufacturing and Service Industries Choice of Technology O140 Economic Development: Financial Markets Saving and Capital Investment Corporate Finance and Governance O160 Microdata Set 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. 2012-03-30T07:33:35Z 2012-03-30T07:33:35Z 2009 Journal Article Journal of Development Economics 03043878 http://hdl.handle.net/10986/5594 EN CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	EN
topic	Labor Demand J230 Firm Performance: Size, Diversification, and Scope L250 Industrialization Manufacturing and Service Industries Choice of Technology O140 Economic Development: Financial Markets Saving and Capital Investment Corporate Finance and Governance O160 Microdata Set
spellingShingle	Labor Demand J230 Firm Performance: Size, Diversification, and Scope L250 Industrialization Manufacturing and Service Industries Choice of Technology O140 Economic Development: Financial Markets Saving and Capital Investment Corporate Finance and Governance O160 Microdata Set De Mel, Suresh McKenzie, David J. Woodruff, Christopher Measuring Microenterprise Profits: Must We Ask How the Sausage Is Made?
description	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.
format	Journal Article
author	De Mel, Suresh McKenzie, David J. Woodruff, Christopher
author_facet	De Mel, Suresh McKenzie, David J. Woodruff, Christopher
author_sort	De Mel, Suresh
title	Measuring Microenterprise Profits: Must We Ask How the Sausage Is Made?
title_short	Measuring Microenterprise Profits: Must We Ask How the Sausage Is Made?
title_full	Measuring Microenterprise Profits: Must We Ask How the Sausage Is Made?
title_fullStr	Measuring Microenterprise Profits: Must We Ask How the Sausage Is Made?
title_full_unstemmed	Measuring Microenterprise Profits: Must We Ask How the Sausage Is Made?
title_sort	measuring microenterprise profits: must we ask how the sausage is made?
publishDate	2012
url	http://hdl.handle.net/10986/5594
_version_	1764395604374454272

Measuring Microenterprise Profits: Must We Ask How the Sausage Is Made?

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