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Rethinking The Purpose Of Micro Enterprises In Developing Countries: Evidence For Mexico

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  • ALEJANDRO MUNGARAY-LAGARDA

    (Universidad Autónoma de Baja California, México)

  • JOSÉ G. AGUILAR-BARCELÓ

    (Universidad Autónoma de Baja California, México)

  • GERMÁN OSORIO-NOVELA

    (Universidad Autónoma de Baja California, México)

Abstract

A large body of economic literature has established that the primary purpose of any firm assuming unitary and constant elasticity of substitution of production inputs, among other necessary conditions, is profit maximization. However, the prevailing operating conditions of the micro enterprises raise concerns about the applicability of this formalization. Through an empirical study for Mexico using a four-input translog function (capital, labor, energy and supplies), and based on cross-sectional data, we find that the elasticities of substitution between production inputs are not unitary; in fact, some of them are complementary. This forces us to consider that instead of seeking to maximize profits, some types of micro enterprises are looking to optimize their installed capacity or achieve financial survival of the owner and their family, thus relaxing the foundations of economic analysis for the very small-scale and nascent micro enterprises.

Suggested Citation

  • Alejandro Mungaray-Lagarda & José G. Aguilar-Barceló & Germán Osorio-Novela, 2016. "Rethinking The Purpose Of Micro Enterprises In Developing Countries: Evidence For Mexico," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 21(03), pages 1-16, September.
    • Handle: RePEc:wsi:jdexxx:v:21:y:2016:i:03:n:s1084946716500199
    DOI: 10.1142/S1084946716500199
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    References listed on IDEAS

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