Register for Lindsey Raymond's seminar, April 15th


Title: “Why Are Small Business Slow to Adopt Profitable Opportunities”

Why do small firms often fail to adopt new profitable opportunities, even in the absence of informational frictions, fixed costs, or misaligned incentives? We explore three potential mechanisms: present bias, memory, and trust in other firms. In partnership with a financial technology (FinTech) company in Mexico, we randomly offer firms that are already users of the payment technology the opportunity to be charged a lower merchant fee for each payment they receive from customers. The median value of the fee reduction is 3% of profits. We randomly vary the size of the fee reduction, whether the firms face a deadline to accept the offer, whether they receive a reminder, and whether we tell them in advance that they will receive a reminder. While deadlines do not affect take-up, reminders increase take-up of the lower fee by 18%, and anticipated reminders by an additional 7%. The results point to limited memory in firms, but not present bias. Additional survey data suggests trust as the mechanism behind the significant additional effect of the anticipated reminder. Upon receiving an anticipated reminder from the FinTech company, firms value the offer more and accept it even if they generally distrust advertised offers.

Presenter: Sean Higgins (Northwestern University)

Coauthors: Paul Gertler (University of California, Berkeley), Ulrike Malmendier (University of California, Berkeley) and Waldo Ojeda (Baruch College)

Discussant: Michael Ewens (Columbia University)