SGER: A Field Experiment on Rebuilding Sri Lankan Microenterprises After the Tsunami

University Of California-San Diego, La Jolla CA

Investigators

Abstract

Project Title: A Field Experiment on Returns to Capital in Sri Lankan Microenterprises The December 2004 Tsunami devastated a number of countries, with Sri Lanka one of the hardest hit. The official death toll in Sri Lanka has risen to over 30,000, with 850,000 people displaced. Donor agencies have responded to initial needs, and appropriate strategies for rebuilding and recovery are now beginning to frame the policy debate. This project proposes to provide a direct opportunity to help microenterprises in Sri Lanka recover, and more broadly, to learn about how to help businesses recover from disasters. The primary objective will be to estimate returns to capital in microenterprises and study the various determinants of firm investment decisions. The PI's propose to sample 350 microenterprises six times each over the course of eighteen months. The firms will be surveyed in Colombo and Kalutara, both regions affected by the tsunami, allowing information on the timeline of recovery. After each survey, 20 percent of enterprises will be randomly selected to receive a cash payment or capital equipment for their enterprise. The capital treatment will generate changes in capital stock which are not correlated with entrepreneurial ability, against which changes in the performance of the enterprise can be compared. The cash treatment along with survey questions on risk and expectations will provide information on the the investment decisions of firms. Direct comparison of the two treatments will provide information about the way in which entrepreneurial ability enters into the microenterprise production function, and will additionally provide policy information on the relative merits of targeting resources through in-kind versus cash payments. The project has a number of potentially large policy implications for recovery projects after disasters and for the operation of microlending programs. In addition, the panel dataset created of microenterprises will be one of the largest anywhere in the world and will be made available to other researchers.