Determinants of Small Business Reopening Decisions After COVID Restrictions Were Lifted

69 Pages Posted: 26 Jun 2020 Last revised: 14 Sep 2021

See all articles by Dylan Balla-Elliott

Dylan Balla-Elliott

Harvard University - Business School (HBS)

Zoe Cullen

Harvard University - Business School (HBS)

Edward L. Glaeser

Harvard University - Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER)

Michael Luca

Harvard University - Business School (HBS)

Christopher Stanton

Harvard University - Business School (HBS); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 31, 2021

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;

JEL Classification: D22, E32, I15, L23

Suggested Citation

Balla-Elliott, Dylan and Cullen, Zoe and Glaeser, Edward L. and Luca, Michael and Stanton, Christopher, Determinants of Small Business Reopening Decisions After COVID Restrictions Were Lifted (August 31, 2021). Harvard Business School Entrepreneurial Management Working Paper No. 20-132, Harvard Business School NOM Unit Working Paper No. 20-132, Available at SSRN: https://ssrn.com/abstract=3634162 or http://dx.doi.org/10.2139/ssrn.3634162

Dylan Balla-Elliott

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
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United States

Zoe Cullen

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=879471

Edward L. Glaeser

Harvard University - Department of Economics ( email )

Littauer Center
Room 315A
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Brookings Institution

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National Bureau of Economic Research (NBER)

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Michael Luca

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=602417

Christopher Stanton (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

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United States

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