February 08, 2019
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Posted by NCID
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It’s always possible to do it better in a (big or small) business, and it’s important knowing specifically how. Logical starting point: realizing that the situation is not going well or that at least is improvable. But, how do you know you can do it better?

Trying to answer that question is the base of Julia Seither’s paper Keeping Up with the Joneses: Ranking Effects on Effort, Cooperation, and Firm Performance. “The idea is that people do care about how they are standing relative to others and they want to keep up with their peers”, said Julia, who presented her work on Monday, February 4 in a Job Market seminar organized by the Navarra Center for International Development, in Pamplona.

Julia is a PhD candidate in Economics at the Nova School of Business and Economics, Universidade Nova de Lisboa, where she is affiliated with NOVAFRICA, and she is focused in development and behavior economics. In her research, made in a market in Mozambique, Julia didn’t give direct incentives to the microentrepreneurs involved, but the opportunity to make them look for those incentives by letting them know their position in a ranking of their same sector.

The usual is giving microentrepreneurs money or skills, but that “hasn’t been very successful”, as Julia said, so her hypothesis started from challenging that notion. Therefore, she did a randomized control trial that showed that, after one year, the microentrepreneurs who received information about their performance in comparison to others changed their behavior and increased their sales and profits, even closing the gap with the top-ranked ones in approximately 43%.

But the idea isn’t just knowing how or what are doing the others to improve their own business but promoting networks and collaboration between microentrepreneurs that share space in favor of both individual and common development. It’s a matter of individual effort and cooperation that involves, beyond working more hours per day, impulse the own behavior as microentrepreneurs, and getting in touch to learn from each other in order to get higher benefits.