A long-standing question in social science is to what extent differences in management cause differences in firm performance. To investigate this, the authors ran a management field experiment on large Indian textile firms, providing free consulting on modern management practices to a randomly chosen set of treatment plants and compared their performance to the control plants. They find that adopting these management practices had three main effects. First, it raised average productivity by 11 percent through improved quality and efficiency and reduced inventory. Second, it increased decentralization of decision making, as better information flow enabled owners to delegate more decisions to middle managers. Third, it increased the use of computers, necessitated by the data collection and analysis involved in modern management. Since these practices were profitable this raises the question of why firms had not adopted these before. Their results suggest that informational barriers were a primary factor in explaining this lack of adoption. Modern management is a technology that diffuses slowly between firms, with many Indian firms initially unaware of its existence or impact. Since competition was limited by constraints on firm entry and growth, badly managed firms were not rapidly driven from the market.

/pdf/does-management-matter-evidence-from-india-njalqn82hr.pdf

Does Management Matter? Evidence from India

Business training programs are a popular policy option to try to improve the performance of enterprises around the world. The last few years have seen rapid growth in the number of evaluations of these programs in developing countries. This paper undertakes a critical review of these studies with the goal of synthesizing the emerging lessons and understanding the limitations of the existing research and the areas in which more work is needed. It finds that there is substantial heterogeneity in the length, content, and types of firms participating in the training programs evaluated. Many evaluations suffer from low statistical power, measure impacts only within a year of training, and experience problems with survey attrition and measurement of firm profits and revenues. Over these short time horizons, there are relatively modest impacts of training on survivorship of existing firms, but stronger evidence that training programs help prospective owners launch new businesses more quickly. Most studies find that existing firm owners implement some of the practices taught in training, but the magnitudes of these improvements in practices are often relatively modest. Few studies find significant impacts on profits or sales, although a couple of the studies with more statistical power have done so. Some studies have also found benefits to microfinance organizations of offering training. To date there is little evidence to help guide policymakers as to whether any impacts found come from trained firms competing away sales from other businesses versus through productivity improvements, and little evidence to guide the development of the provision of training at market prices. The paper concludes by summarizing some directions and key questions for future studies.

/pdf/what-are-we-learning-from-business-training-and-3d5rsfx97h.pdf

What are we learning from business training and entrepreneurship evaluations around the developing world

The investment decisions of small-scale farmers in developing countries are conditioned by their financial environment Binding credit market constraints and incomplete insurance can reduce investment in activities with high expected profits We conducted several experiments in northern Ghana in which farmers were randomly assigned to receive cash grants, grants of or opportunities to purchase rainfall index insurance, or a combination of the two Demand for index insurance is strong, and insurance leads to significantly larger agricultural investment and riskier production choices in agriculture The salient constraint to farmer investment is uninsured risk: when provided with insurance against the primary catastrophic risk they face, farmers are able to find resources to increase expenditure on their farms Demand for insurance in subsequent years is strongly increasing in a farmer’s own receipt of insurance payouts, and with the receipt of payouts by others in the farmer’s social network Both investment patterns and the demand for index insurance are consistent with the presence of important basis risk associated with the index insurance, and with imperfect trust that promised payouts will be delivered

Agricultural Decisions after Relaxing Credit and Risk Constraints

This paper measures the economic impact of social pressure to share income with kin and neighbors in rural Kenyan villages. The authors conduct a lab experiment in which they randomly vary the observability of investment returns. The goal is to test whether subjects reduce their income in order to keep it hidden. The analysis finds that women adopt an investment strategy that conceals the size of their initial endowment in the experiment, although that strategy reduces their expected earnings. This effect is largest among women with relatives attending the experiment. Parameter estimates suggest that women behave as though they expect to be pressured to share four percent of their observable income with others, and substantially more when close kin can observe income directly. Although this paper provides experimental evidence from a single African country, observational studies suggest that similar pressure from kin may be prevalent in many rural areas throughout Sub-Saharan Africa.

http://pamjakiela.com/JakielaOzier-VillageEconomies-2015-06-04.pdf

Does Africa Need a Rotten Kin Theorem? Experimental Evidence from Village Economies

Sub-Saharan Africa has just experienced one of the best decades of growth since the 1960s. Between 2000 and 2012, gross domestic product (GDP) grew more than 4.5 percent a year on average, compared to around 2 percent in the prior 20 years (World Bank various years). In 2012, the region's GDP growth was estimated at 4.7 percent- 5.8 percent if South Africa is excluded (World Bank 2013). About one-quarter of countries in the region grew at 7 percent or better, and several African countries are among the fastest growing in the world. Medium-term growth prospects remain strong and should be supported by a rebounding global economy. The challenge of youth employment in Africa may appear daunting, yet Africa's vibrant youth represent an enormous opportunity, particularly now, when populations in much of the world are aging rapidly. Youth not only need jobs, but also create them. Africa's growing labor force can be an asset in the global marketplace. Realizing this brighter vision for Africa's future, however, will require a clearer understanding of how to benefit from this asset. Meeting the youth employment challenge in all its dimensions, demographic, economic, and social, and understanding the forces that created the challenge, can open potential pathways toward a better life for young people and better prospects for the countries where they live. The report examines obstacles faced by households and firms in meeting the youth employment challenge. It focuses primarily on productivity, in agriculture, in nonfarm household enterprises (HEs), and in the modern wage sector, because productivity is the key to higher earnings as well as to more stable, less vulnerable, livelihoods. To respond to the policy makers' dilemma, the report identifies specific areas where government intervention can reduce those obstacles to productivity for households and firms, leading to brighter employment prospects for youth, their parents, and their own children.

/pdf/youth-employment-in-sub-saharan-africa-h8poec5jbt.pdf

Youth Employment in Sub-Saharan Africa

Many basic economic theories with perfectly functioning markets do not predict the existence of the vast number of microenterprises readily observed across the world. We put forward a model that illuminates why financial and managerial capital constraints may impede experimentation, and thus limit learning about the profitability of alternative firm sizes. The model shows how lack of information about one's own type, but willingness to experiment to learn one's type, may lead to short-run negative expected returns to investments on average, with some outliers succeeding. To test the model we put forward first a motivating experiment from Ghana, and second a small meta-analysis of other experiments. In the Ghana experiment, we provide inputs to microenterprises, specifically financial capital (a cash grant) and managerial capital (consulting services), to catalyze adoption of investments and practices aimed towards enterprise growth. We find that entrepreneurs invest the cash, and take the advice, but both lead to lower profits on average. In the long run, they revert back to their prior scale of operations. The small meta analysis includes results from 18 other experiments in which either capital or managerial capital were relaxed, and find mixed support for this theory.

/pdf/hoping-to-win-expected-to-lose-theory-and-lessons-on-micro-19205zz9rz.pdf

Hoping to Win, Expected to Lose: Theory and Lessons on Micro Enterprise Development

Many basic economic theories with perfectly functioning markets do not predict the existence of the vast number of microenterprises readily observed across the world. We put forward a model that illuminates why financial and managerial capital constraints may impede experimentation, and thus limit learning about the profitability of alternative firm sizes. The model shows how lack of information about one’s own type, but willingness to experiment to learn one’s type, may lead to short-run negative expected returns to investments on average, with some outliers succeeding. To test the model we put forward first a motivating experiment from Ghana, and second a small meta-analysis of other experiments. In the Ghana experiment, we provide inputs to microenterprises, specifically financial capital (a cash grant) and managerial capital (consulting services), to catalyze adoption of investments and practices aimed towards enterprise growth. We find that entrepreneurs invest the cash, and take the advice, but both lead to lower profits on average. In the long run, they revert back to their prior scale of operations. The small meta analysis includes results from 18 other experiments in which either capital or managerial capital were relaxed, and find mixed support for this theory.

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Hoping to Win, Expected to Lose: Theory and Lessons on Micro Enterprise Development

Hoping to Win, Expected to Lose: Theory and Lessons on Micro Enterprise Development