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  • 2021
  • Working Paper
  • HBS Working Paper Series

Determinants of Small Business Reopening Decisions After COVID Restrictions Were Lifted

By: Dylan Balla-Elliott, Zoë B. Cullen, Edward L. Glaeser, Michael Luca and Christopher Stanton
  • Format:Print
  • | Language:English
  • | Pages:69
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Abstract

The COVID-19 pandemic led to dramatic economic disruptions, including government-imposed restrictions that temporarily shuttered millions of American businesses. We use a nation-wide survey of thousands of small business owners to establish three main facts about business owners’ decisions to reopen at the end of the lockdowns. First, roughly 60% of firms planned to reopen within days of the end of legal restrictions, suggesting that the lockdowns were generally binding for businesses - although nearly 30% expected to delay their reopening by at least a month. Second, decisions to delay reopenings did not seem to be driven by concerns about employee or customer health; even businesses in high-proximity sectors with the highest health risks generally reported intentions to reopen as soon as possible. Third, pessimistic demand projections primarily explain delays among firms that could legally reopen. Owners expected demand to be one-third lower than before the crisis throughout the pandemic. Using experimentally induced shocks to perceived demand, we find that a 10% decline in expected demand results in a 1.5 percentage point (8%) increase in the likelihood that firms expected to remain closed for at least one month after being legally able to open. We use follow-up surveys to cross-validate expectations with realized outcomes. Overall, our results suggest that governments were setting more stringent guidelines for reopening, relative to what many businesses would have selected, suggesting that governments may have internalized costs of contagion that businesses did not.

Keywords

COVID-19; Demand Forecasting; Reopening; Health Pandemics; Demand and Consumers; Forecasting and Prediction

Citation

Balla-Elliott, Dylan, Zoë B. Cullen, Edward L. Glaeser, Michael Luca, and Christopher Stanton. "Determinants of Small Business Reopening Decisions After COVID Restrictions Were Lifted." NBER Working Paper Series, No. 27362, June 2020. (Revised August 2021. Forthcoming in the Journal of Policy Analysis and Management. Harvard Business School Working Paper, No. 20-132, June 2020)
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About The Authors

Zoe B. Cullen

Entrepreneurial Management
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Michael Luca

Negotiation, Organizations & Markets
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Christopher T. Stanton

Entrepreneurial Management
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More from the Authors

    • March 2022
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    How Much Does Your Boss Make? The Effects of Salary Comparisons

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    • December 2021
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    Employee Responses to Compensation Changes: Evidence from a Sales Firm

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    Leaders: Stop Confusing Correlation with Causation

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More from the Authors
  • How Much Does Your Boss Make? The Effects of Salary Comparisons By: Zoë B. Cullen and Ricardo Perez-Truglia
  • Employee Responses to Compensation Changes: Evidence from a Sales Firm By: Jason Sandvik, Richard Saouma, Nathan Seegert and Christopher Stanton
  • Leaders: Stop Confusing Correlation with Causation By: Michael Luca
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