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Measuring microenterprise profits : don't ask how the sausage is made


  • de Mel, Suresh
  • McKenzie, David
  • Woodruff, Christopher


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. But a myriad of problems plague the measurement of profits. The authors report 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, they (1) examine how far we can reconcile self-reported profits and reports of revenue minus expenses through more detailed questions; (2) examine recall errors in sales and report on the results of experiments which randomly allocated account books to firms; and (3) ask firms how much firms like theirs underreport sales in surveys like this, and have research assistants observe the firms at random times 15-16 times during a month to provide measures for comparison. The authors conclude that firms underreport revenues by about 30 percent, that account diaries have significant effects 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.

Suggested Citation

  • de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Measuring microenterprise profits : don't ask how the sausage is made," Policy Research Working Paper Series 4229, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4229

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    References listed on IDEAS

    1. Vijverberg, P.M., 1992. "Measuring Income from Family Enterprises with Household Surveys," Papers 84, World Bank - Living Standards Measurement.
    2. Abhijit V. Banerjee & Esther Duflo, 2007. "The Economic Lives of the Poor," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 141-168, Winter.
    3. 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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      by Chris Blattman in Chris Blattman on 2008-10-21 20:21:00


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    3. Blattman, Christopher & Fiala, Nathan & Martinez, Sebastian, 2011. "Employment generation in rural Africa : mid-term results from an experimental evaluation of the Youth Opportunities Program in Northern Uganda," Social Protection and Labor Policy and Technical Notes 66523, The World Bank.
    4. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 275-363.
    5. Bardasi, Elena & Beegle, Kathleen & Dillon, Andrew & Serneels, Pieter, 2010. "Do labor statistics depend on how and to whom the questions are asked ? results from a survey experiment in Tanzania," Policy Research Working Paper Series 5192, The World Bank.
    6. McKenzie, David & Seynabou Sakho, Yaye, 2010. "Does it pay firms to register for taxes? The impact of formality on firm profitability," Journal of Development Economics, Elsevier, vol. 91(1), pages 15-24, January.
    7. repec:dau:papers:123456789/10910 is not listed on IDEAS
    8. Suresh de Mel & David McKenzie & Christopher Woodruff, 2009. "Are Women More Credit Constrained? Experimental Evidence on Gender and Microenterprise Returns," American Economic Journal: Applied Economics, American Economic Association, vol. 1(3), pages 1-32, July.
    9. repec:dau:papers:123456789/10921 is not listed on IDEAS
    10. Rafael La Porta & Andrei Shleifer, 2014. "The Unofficial Economy in Africa," NBER Chapters,in: African Successes, Volume I: Government and Institutions, pages 261-306 National Bureau of Economic Research, Inc.
    11. World Bank, 2009. "Gender in Bolivian Production : Reducing Differences in Formality and Productivity of Firms," World Bank Publications, The World Bank, number 2669, March.
    12. Lee, Soohyung & Malin, Benjamin A., 2013. "Education's role in China's structural transformation," Journal of Development Economics, Elsevier, vol. 101(C), pages 148-166.
    13. Steinbuks, J., 2008. "Financial constraints and firms' investment: results of a natural experiment measuring firm response to power interruption," Cambridge Working Papers in Economics 0844, Faculty of Economics, University of Cambridge.
    14. Kenyon, Thomas, 2008. "Tax Evasion, Disclosure, and Participation in Financial Markets: Evidence from Brazilian Firms," World Development, Elsevier, vol. 36(11), pages 2512-2525, November.
    15. repec:dau:papers:123456789/10625 is not listed on IDEAS

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    Business in Development; Business Environment; Competitiveness and Competition Policy; Economic Theory&Research; Income;

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