Limited Impact of Business Development Programs on Entrepreneurs' Profitability in the Presence of Ambiguity Aversion

Abstract

This paper develops a theoretical framework to explain the limited effect of business development programs (BDPs) on entrepreneurs' profits. We argue that a mismatch between a BDP's narrow focus on business-promoting strategies and the wider context in which microentrepreneurs operate can limit the impact of business training. In our framework, entrepreneurs are ambiguity-averse and have multiple sources of income (e.g., business and wage incomes.) We show that for a sufficiently ambiguity-averse entrepreneur with multiple income sources, efficient training can result in a decline in expected profit. Notably, when the wider context (multiple income sources, ambiguity-aversion) is considered, the business-training impact is limited and can result in a post-training expected profit decline. This limited impact is caused by the diversifying role that the business income plays in household finances.