Measuring Microenterprise Profits : Don't 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. 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.
| Main Authors: | , , |
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| Language: | English |
| Published: |
World Bank, Washington, DC
2007-05
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| Subjects: | ACCOUNT, ACCOUNTING, ACCOUNTS, BOOKKEEPING, BUSINESS EXPENSES, BUSINESS TRAINING, EARNING, EXPENDITURE, EXPENDITURES, INCOME, INVENTORIES, INVENTORY, LIVING STANDARDS, LOTTERY, PRODUCTION FUNCTION, REPORTING, SALARIES, SALARY, SALES, SELLING, VARIABLE COSTS, WAGE, WAGES, Microdata Set, |
| Online Access: | http://documents.worldbank.org/curated/en/2007/05/7585334/measuring-microenterprise-profits-dont-ask-sausage-made https://hdl.handle.net/10986/7075 |
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| Summary: | 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. |
|---|