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Limited Impact of Business Development Programs on Entrepreneurs’ Profitability in the Presence of Ambiguity Aversion

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  • Dmitry Shapiro

    (Seoul National University)

Abstract

This paper develops a theoretical framework to explain the limited effect of business development programs (BDPs) on entrepreneurs’ profits. We argue that a mismatch between a BDP’s narrow focus on business-promoting strategies and the wider context in which micro entrepreneurs operate can limit the impact of business training. In our framework,entrepreneurs are ambiguity-averse and have multiple sources of income (e.g., business and wage incomes.) We show that for a sufficiently ambiguity-averse entrepreneur with multiple income sources, efficient training can result in a decline in expected profit. Notably, when the wider context (multiple income sources, ambiguity-aversion) is considered, the business training impact is limited and can result in a post-training expected profit decline. This limited impact is caused by the diversifying role that the business income plays in household finances.

Suggested Citation

  • Dmitry Shapiro, 2020. "Limited Impact of Business Development Programs on Entrepreneurs’ Profitability in the Presence of Ambiguity Aversion," Korean Economic Review, Korean Economic Association, vol. 36, pages 377-413.
    • Handle: RePEc:kea:keappr:ker-20200701-36-2-04
    as

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    References listed on IDEAS

    as
    1. Abhijit Vinayak Banerjee, 2013. "Microcredit Under the Microscope: What Have We Learned in the Past Two Decades, and What Do We Need to Know?," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 487-519, May.
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    More about this item

    Keywords

    Business Development Programs; Ambiguity Aversion; Microentrepreneurship;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • D1 - Microeconomics - - Household Behavior

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