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

Dean Karlan
Authors registered in the RePEc Author Service: Christopher Udry and Dean Karlan

No 312, Working Papers from Center for Global Development

Abstract: We show how financial and managerial constraints impede experimentation and thus limit learning about the profitability of investments. Imperfect information about one’s own type, but willingness to experiment to learn one’s type, leads to short-run negative expected returns to investments, with some outliers succeeding. We find in an experiment that entrepreneurs invest randomized grants of cash and adopt advice from randomized grants of consulting services, but both lead to lower profits on average. In the long run, they revert back to their prior scale of operations. In a meta-analysis, results from 19 other experiments find mixed support for this theory.

Keywords: entrepreneurship; credit constraints; business training; consulting; managerial capital (search for similar items in EconPapers)
JEL-codes: D21 D24 D83 D92 L20 M13 O12 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2012-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (69)

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Related works:
Working Paper: Hoping to Win, Expected to Lose: Theory and Lessons on Micro Enterprise Development (2012)
Working Paper: Hoping to Win, Expected to Lose: Theory and Lessons on Micro Enterprise Development (2012)
Working Paper: Hoping to Win, Expected to Lose: Theory and Lessons on Micro Enterprise Development (2012)
Working Paper: Hoping to Win, Expected to Lose: Theory and Lessons on Micro Enterprise Development (2012)
Working Paper: Hoping to Win, Expected to Lose: Theory and Lessons on Micro Enterprise Development (2012)
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