Measuring microenterprise profits: Must we ask how the sausage is made?
AbstractA 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.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 88 (2009)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/devec
O12 O16 C81 C93 M41 Microenterprises Underreporting Measurement Evaluation Survey methods Poverty;
Find related papers by JEL classification:
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
- C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- Mic - Business Administration and Business Economics; Marketing; Accounting - - - - -
- Und - - - - - -
- Mea - Business Administration and Business Economics; Marketing; Accounting - - - - -
- Eva - Macroeconomics and Monetary Economics - - - - -
- Sur - - - - - -
- met - - - - - -
- Pov - Economic Systems - - - - -
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Suresh de Mel & David McKenzie & Christopher Woodruff, 2008. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1329-1372, November.
- de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to capital in microenterprises : evidence from a field experiment," Policy Research Working Paper Series 4230, The World Bank.
- de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2008. "Mental health recovery and economic recovery after the tsunami: High-frequency longitudinal evidence from Sri Lankan small business owners," Social Science & Medicine, Elsevier, vol. 66(3), pages 582-595, February.
- Banerjee, Abhijit & Duflo, Esther, 2006.
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CEPR Discussion Papers
5968, C.E.P.R. Discussion Papers.
- Lisa Daniels, 2001. "Testing alternative measures of microenterprise profits and net worth," Journal of International Development, John Wiley & Sons, Ltd., vol. 13(5), pages 599-614.
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