SIER Working Paper Series

This paper develops a theoretical framework to explain a limited e?ect of business development programs (BDPs) on entrepreneurs’ profit. We argue BDPs limited effect is due to mismatch between a BDPs’ narrow focus on business-promoting strategies and a wider context in which microentrepreneurs operate. Entrepreneurs are ambiguity-averse and have multiple sources of income, e.g. business and wage incomes, that are correlated with each other. We show that for a sufficiently ambiguity-averse entrepreneur with multiple income sources e?cient training can result in pro?t decline. We, further, show that both the ambiguity aversion and the multiplicity of income sources are crucial for our results. Only when the wider context (multiple income sources, ambiguity-aversion) is considered, the business-training impact is limited and can result in post-training profit decline. The limited impact is caused by the diversifying role that the business income plays in households’ finances.

Keywords: Business development programs, ambiguity aversion, microentrepreneurship

JEL classification: O12, O16, D1