Measuring the return on household enterprise: What matters most for whom?

Abstract

Return on assets (ROA) of household enterprise is crucial for understanding the productivity of households in developing economies. Yet the definition and measurement of household enterprise ROA remain inconsistent or unclear. We illustrate potential measurement problems with examples from various surveys. We take advantage of a detailed household survey and analyze what matters and for whom. The three issues that matter most for measurement of household enterprise ROA are the choice of accrual versus cash income, the treatment of household labor in enterprise income, and the treatment of non-factor income. This sensitivity matters most for a poorer region dominated by cultivation relative to a richer region with non-farm enterprises. Though the choice between accrued and cash income matters less when the frequency of the data declines, there remains high sensitivity in annualized data. We provide recommendations on how to improve the survey questionnaires for more accurate measurement in field research.