Analyzing a Flawed Research Design
A researcher is studying the impact of initial funding on the long-term survival of new businesses. They form two groups:
- Group A: Entrepreneurs who started their business using a large, unexpected inheritance.
- Group B: Entrepreneurs who started their business using a standard bank loan.
The researcher plans to track the business survival rates of both groups over five years. A colleague points out a critical flaw in this research design, arguing that the two groups are not truly comparable for isolating the effect of the funding source.
Explain the most likely reason for the colleague's criticism. Specifically, what underlying difference between the two groups (other than the source of funds) could systematically affect the study's outcome?
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Tags
Science
Economy
CORE Econ
Social Science
Empirical Science
Economics
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Related
British Study on Inheritance and Entrepreneurship (Blanchflower & Oswald, 1998)
Study on Inheritance and Transitions to Self-Employment (Holtz-Eakin, Joulfaian, & Rosen, 1994)
An economist observes that individuals who receive a sudden, unexpected financial windfall are significantly more likely to start their own business within the following year compared to a demographically similar group of individuals who did not receive such a windfall. What is the most robust economic conclusion that can be drawn from this observation?
Evaluating a Research Design for Financial Constraints
Critiquing the Inheritance-as-Experiment Model
The Logic of Using Inheritance as a Research Tool
The primary reason that receiving an unexpected inheritance is a useful natural experiment for studying credit constraints is that the amount of the inheritance is typically large enough to fund a new business.
Match each component of a study using inheritance to understand financial constraints with its corresponding role or interpretation in the research design.
When economists use the receipt of an unexpected inheritance as a natural experiment, they are typically investigating the impact of __________ on individual economic behavior, such as entrepreneurship.
Analyzing a Flawed Research Design
Interpreting Scenarios of Financial Windfalls
A researcher is using the receipt of an unexpected inheritance as a natural experiment to test the hypothesis that some potential entrepreneurs are credit-constrained. Arrange the following statements into the correct logical sequence that outlines the research process and its conclusion.