Subsistence Entrepreneurship and Targeted Interventions: Evidence from Dandora, Kenya
Faculty Research Grant
This project studies entrepreneurs in Dandora, Kenya by implementing a randomized controlled trial to measure the effects of cash transfers. Unlike previous studies, this project takes into account the different ways that different types of entrepreneurs use funds. In developing countries, there are two types of people who start businesses: those that believe entrepreneurship is the activity that they prefer or are most suited to, and those that would take a job at another business if they had the choice. Studying these two groups separately is crucially important for understanding how entrepreneurs respond to liquidity shocks. If given cash, those entrepreneurs who prefer to run their own businesses will expand their business, hire new employees or otherwise operate at a higher scale. Entrepreneurs that would prefer to be workers, however, may use that cash to search for work, and their business may shrink. This composition effect may explain the quantitatively small impact that transfer programs have been found to have on entrepreneurs.