Summary: Small Business Economics

Read the summary and the most important questions on Small Business Economics

• 1 Week 1: The big picture

• CQ 1: How are small businesses defined? (2)

  • No international standard (but there is one in EU: remember the head counts), international comparisons are difficult
    
  • Definitions important for targeting policies (but may also hamper SME growth)

• CQ 2: Are small businesses or large business most important in economies?

  SME numerically dominant, main employers, value added per head relatively low

• CQ 3: What types of uncertainty do small businesses face? (3)

  • Internal (1x) versus external uncertainty (3x)
    
  • 5 approaches to limit external uncertainty
  • 3 stylised differences between large and small businesses

• 1.1 CQ 1: How are small businesses defined?

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• What is a business? (3)

  • An organisation or enterprising entity engaged in commercial, industrial, or professional activities
    
  • Organization/entity
  • Activities

• What are the 3 motivation for EU to harmonise SME definition?

  1. Statistical data 
     
  2. Directing support
  3. Regulatory and administrative threshold

• What is the 'directing support' motivation explanation?

  Many EU business-support programs targeted specifically at SME's: makes research funding, competitiveness and innovation funding and similar national support programs possible that could otherwise be banned as unfair government support ('state aid')

• What is the 'regulatory and administrative threshold' motivation explanation?

  Determining exemptions from a wide range of obligations, SME face fewer requirements or reduced fees for EU administrative compliance

• What are 2 counterarguments for defining SME's for policy?

  1. SME policies as a barrier to growth of SME's
     
  2. SME requirements are significant constraints on firm growth

• 1.2 CQ 2: Are small businesses or large businesses most important in economics?

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• What 5 factors contribute positive or negative to the size of the SME sector?

  1. Easy entry (positive)
     
  2. Easy exit (negative)
  3. Strong contract enforcement (positive)
  4. Efficient access to credit (positive)
  5. Rigid labor regulations (positive)

• What is strong contract enforcement?

  Low legal costs incurred in dispute resolution relative to the value of the disputed debt