Publication
Nov 2012
The article examines the impact of financial and managerial constraints. It shows how financial and managerial constraints impede experimentation and thus limit learning about the profitability of investments. Imperfect information about one’s own type, despite willingness to experiment to learn one’s type, leads to short-run negative expected returns to investments, with some outliers succeeding. The paper finds 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.
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English (PDF, 55 pages, 1.0 MB) |
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Author | Dean Karlan, Ryan Knight, Christopher Udry |
Series | CGD Working Papers |
Issue | 312 |
Publisher | Center for Global Development (CGD) |
Copyright | © 2012 Center for Global Development (CGD) |