Determinants of Small Business Reopening Decisions After COVID Restrictions Were Lifted

Dylan Balla-Elliott Author-1-Name-First: Dylan Author-1-Name-Last: Balla-Elliott (), Zoë B. Cullen Author-2-Name-First: Zoë Author-2-Name-Last: Cullen (), Edward L. Glaeser Author-3-Name-First: Edward Author-3-Name-Last: Glaeser (), Michael Luca Author-4-Name-First: Michael Author-4-Name-Last: Luca () and Christopher Stanton Author-5-Name-First: Christopher Author-5-Name-Last: Stanton ()
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Dylan Balla-Elliott Author-1-Name-First: Dylan Author-1-Name-Last: Balla-Elliott: Harvard Business School
Zoë B. Cullen Author-2-Name-First: Zoë Author-2-Name-Last: Cullen: Harvard Business School, Entrepreneurial Management Unit
Edward L. Glaeser Author-3-Name-First: Edward Author-3-Name-Last: Glaeser: Harvard University
Michael Luca Author-4-Name-First: Michael Author-4-Name-Last: Luca: Harvard Business School, Negotiation, Organizations & Markets Unit
Christopher Stanton Author-5-Name-First: Christopher Author-5-Name-Last: Stanton: Harvard Business School, Entrepreneurial Management Unit

No 20-132, Harvard Business School Working Papers from Harvard Business School

Abstract: The COVID-19 pandemic led to dramatic economic disruptions, including government-imposed restrictions that temporarily shuttered millions of American businesses. We use a nation-wide survey of thousands of small business owners to establish three main facts about business owners’ decisions to reopen at the end of the lockdowns. First, roughly 60% of firms planned to reopen within days of the end of legal restrictions, suggesting that the lockdowns were generally binding for businesses - although nearly 30% expected to delay their reopening by at least a month. Second, decisions to delay reopenings did not seem to be driven by concerns about employee or customer health; even businesses in high-proximity sectors with the highest health risks generally reported intentions to reopen as soon as possible. Third, pessimistic demand projections primarily explain delays among firms that could legally reopen. Owners expected demand to be one-third lower than before the crisis throughout the pandemic. Using experimentally induced shocks to perceived demand, we find that a 10% decline in expected demand results in a 1.5 percentage point (8%) increase in the likelihood that firms expected to remain closed for at least one month after being legally able to open. We use follow-up surveys to cross-validate expectations with realized outcomes. Overall, our results suggest that governments were setting more stringent guidelines for reopening, relative to what many businesses would have selected, suggesting that governments may have internalized costs of contagion that businesses did not.

Keywords: COVID-19; demand forecasting; reopening (search for similar items in EconPapers)
JEL-codes: D22 E32 I15 L23 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2020-06, Revised 2021-08
New Economics Papers: this item is included in nep-cwa, nep-ent and nep-mac
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