Small firms frequently need to respond to instability and volatility, despite having little financial cushion to draw upon. This makes managing the business more complicated, more mentally taxing, and riskier, and has consequences across several major areas of a business’ operations. The uncertainty and irregularity of cash flows make firm owners wary of taking on additional commitments that require making major payments on fixed dates or in steady increments. Similarly, owners may try to pay workers as flexibly as possible (only paying them when work is completed, for example) and letting workers go.

Policy decisions often depend on evidence generated elsewhere. We take a decision theoretic approach to choosing where to experiment to optimize external validity. We frame external validity through a policy lens, taking a Bayesian approach and developing a prior specification for the joint distribution of site-level treatment effects using a microeconometric structural model and allowing for other sources of heterogeneity. With data from South Asia, we show that, relative to basing policies on experiments in optimal sites, large efficiency losses result from instead using evidence from randomly-selected sites or, conversely, from sites with the largest expected treatment effects.

The poverty rate is an important focus of economic policy. We show, however, that in low- and middle-income countries, the poverty rate is often not what it seems. Poverty, as conventionally measured, is thought to be the proportion of households that are poor for the year, but we show that, under common data collection practices, the measure instead captures the average share of the year that households are poor. The resulting poverty rates are sensitive to the timing of household consumption, not just its total value. For policy, this means that, contrary to common assumptions, the de facto concept of national poverty in many countries is sensitive to households’ exposure to shocks and their ability to smooth consumption within the year. While created inadvertently, this de facto concept of poverty has appealing properties as a measure of well-being, and it raises new philosophical questions about the nature of deprivation. This transformation has happened without a change in the form of the poverty measures and without longitudinal data. Instead, the transformation follows from three common practices used when collecting household data: asking survey questions with short-term recall (often covering only the past week’s or month’s spending), stratifying on sub-periods (usually quarters), and surveying households only once during the year. We illustrate the implications with monthly panel data from rural India, showing that time-sensitivity in poverty measurement has quantitatively large impacts on measured poverty, improves predictions of health outcomes, and expands the scope of strategies to reduce global poverty.

With this brief we have tried to document the most important elements of our research design so that people reading Small Firm Diaries reports, findings, and recommendations will have a clear view into how the study was conceived, how the sample population was selected, and how the data was collected and cleaned. In doing so we have shared some— though certainly not all—of the key decisions and challenges we faced along the way.