Nova School of Business and Economics, IZA and NOVAFRICA
University of Chicago, Universidad del CEMA, and NOVAFRICA
Working Paper No 1906
This paper presents empirical evidence on the relationship between behavioral constraints and entrepreneurial success of micro-firms. Approximately 600 micro-entrepreneurs were randomized into treatments providing information about a role model, additionally the importance of establishing realistic goals, and how to maintain funds within their enterprises. Six months after implementation we find significant positive effects of shifts in aspirations on effort levels and savings. These effects can be precisely estimated even one year after implementation. On average, changes in investment behavior translate to increases in sales of 99% and 89% in profits compared to a control group. In contrast, human capital improvements have no effect on investment behavior. Furthermore, setting business goals mitigates the positive effects of role models on economic growth. Despite similar effects on effort levels, participants that condition their aspirations increase on a one-year goal save less and the positive effects on firm outcomes disappear over time.