| Abstract: |
Do behavioral biases and the distortions generated by the presence of
organized crime limit microentrepreneurs’ adoption of growth-oriented business
practices? We explore this question in a field experiment with informal
microentrepreneurs in which we provide informational visits and text messages
about the advantages and convenience of a formalization program. All
microentrepreneurs operated in Complexo Maré, a Favela in Rio de Janeiro,
Brazil, where an important contextual factor was the presence of organized
crime groups. After a recent state intervention, violence had increased in the
intervened territories. Our average results suggest that while informative
in-person visits do increase the knowledge about the formalization program and
even the interest in formalizing, complementing the intervention with
reminding messages is needed to increase business formalization. That is,
treatment groups that received either information sessions or text messages
show no effect, while those receiving both treatments show an increase in
formalization by 8.5 percentage points. We also find, however, that these
effects of the nudging intervention can be cancelled out by the distortions
imposed by organized crime, in particular, by the mobility restrictions they
often use to control their territories. We interpret these results as evidence
in support of the importance of behavioral interventions such as reminder
messages, to overcome limited attention and procrastination biases by
microentrepreneurs, but also as an indication of the impacts that organized
crime may have on adopting good business practices. |