What’s new: In start-ups, SMEs, and sharing platforms?

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Rifat At Her Cosmetics Shop And General Store In Gujar Khan Town
Rifat, at her cosmetics shop and general store in Gujar Khan Town, World Bank Flickr

Entrepreneurship encompasses multiple dimensions, which is why it's always a pleasure to follow the NBER Entrepreneurship Working Group meetings – both for the high quality of papers and discussions as well as for the breadth of topics. This year's winter workshop was no exception, with topics ranging from start-up job creation, to corporate structure in Imperial Russia, to negative externalities of ride-sharing platforms.

Here are a few highlights:

  • Robert Fairlie and coauthors put together an impressive dataset covering all U.S. start-ups. Previous efforts, such as the analysis by John Haltiwanger and coauthors, focused only on firms that have at least one employee. While in aggregate, U.S. start-ups create some 3 million new jobs, these numbers are driven by the sheer volume of start-ups. An average start-up creates just 0.6 new jobs over the first eight years (not including the founders) and most start-ups never become employers. This suggests that even in the United States – a benchmark that studies use for a "dynamic" economy, such as the one by Hsieh and Klenow – firm growth can be a challenge and a transition from start-up to scale-up fails for the majority of enterprises. This is a topic that we covered in the recent World Bank report on High-Growth Firms : Facts, Fiction, and Policy Options for Emerging Economies
  • Reflecting on this point from a completely different angle, Amanda Gregg and Steven Nafziger have been looking at the lifecycle of corporations in late imperial Russia—where corporate status was granted by royal decree—and found that general patterns of firm entry and exit largely followed what one would expect in a "normal" competitive economy.
  • Patricio Dalton and coauthors, including World Bank’s Bilal Zia, worked on a Randomized Controlled Trial (RCT); tracing the implementation of good business and management practices by small and mostly female retailers in Jakarta. They sourced the list of good business practices from the retailers themselves—picking ones that show the greatest impact on profits, growth, etc.—and compiled them into handbook. It was shared with other retailers and, for some, accompanied by either a 24-minute video or two 30-minute hands-on training sessions. The relatively low-cost intervention ($100 per firm for the book + an additional $25 per firm for either movie or the training sessions) delivered a 40% increase in profits ($300 on a base of $800) and 13% increase in sales six months out. But it did not lead to significant changes in employment. The next check-in will be at 18 months following the intervention.
  • John Barrios and coauthors shared some cautionary notes about the expansion of ride-sharing platforms. There have been a number of concerns about the adverse consequences of the gig economy on social protection, for example this OECD policy brief on the future of work. But, the Barrios paper looks at environmental and safety externalities. The authors show that the introduction of ride-sharing platforms in U.S. cities has led to increased accidents, traffic fatalities (including pedestrian), vehicle miles traveled, fuel usage, and traffic congestion. The paper argues that this is because ride-share drivers only have passengers 39% of the time spent on the road (59% of the miles), and that a significant share of riders would have walked or taken public transit in the absence of ride-sharing. They also shared an interesting bit of trivia: in 2014, 43 economists convened at the University of Chicago for a panel discussion on the economic costs and benefits of ride-sharing. All the participants ruled out the existence of any potential negative externalities—conditional on adoption of safety/insurance regulations like the taxi industry—and focused exclusively on welfare benefits to consumers through enhanced competition. While this could be an outlier, it may also be a warning to not overemphasize the positive aspects of a new and appealing technology.


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