Both subjective perceptions of managers and objective data on various business climate indicators are recorded.

# **Box 1: Basic infrastructure variables – subjective and objective**

With respect to basic infrastructure, there is one key subjective perceptions variable in the core survey. It includes three indicators: electricity, transport and telecommunications.

- Rate whether the following issues are a problem for the operation and growth of your business on a five point scale from ‘No Obstacle’ up to ‘Very Severe Obstacle’: (a) Telecommunications, (b) Electricity, (c)Transportation (d) ... [14 other non-infrastructure issues incl. customs/trade regulation, labor regulation etc.]

There are also a number of objective indicators:

- During how many days last year did your establishment experience the following service interruptions, how long did they last, and what percent of your total sales value was lost last year due to: (a) power outages or surges from the public grid? (b) insufficient water supply?; (c) unavailable mainline telephone service?

- Does your establishment own or share a generator? If yes, what percentage of your electricity comes from your own or a shared generator?

- What share of your firm’s water supply do you get from public sources?

- What percentage of the value of your average cargo consignment is lost while in transit due to breakage, theft or spoilage?

- Does your enterprise regularly use e-mail or a website in its interactions with clients and suppliers

- Based on the experience of your establishment over the last two years, what is the actual delay experienced (from the day you applied to the day you received the service or approval) and was a gift or informal payment asked for or expected to obtain each of the following? (a) A mainline telephone connection, (b) An electrical connection, (c) A water connection; (d)... [three other non-infrastructure issues]

Specific national surveys may add infrastructure questions to augment the core-instrument. Moreover, some changes to the core instrument have been made over time, thus some surveys include additional indicators, in the case of infrastructure for instance:

- What is your average cost of a kilowatt-hour (KwH) of electricity from the public grid?

- • If yes <u>[on generator ownership], what was the generator’s original cost to your establishment?</u>

There has been considerable debate about possible weaknesses of subjective, perceptionbased indicators compared to objective, quantitative data. Concerns have been raised whether subjective data may be vulnerable to ‘waves of pessimism and euphoria’, to inconsistencies across regions and countries because firms compare themselves to different benchmarks (so called “anchoring effects”<sup>30</sup> ), or to managers’ inability to form accurate subjective estimates.<sup>31</sup> For instance, managers may fail to separate internal weaknesses of the firm (e.g. inability to provide proper documentation) from external business climate constraints (e.g. inefficient bureaucracy. These problems are a specific concern when conducting econometric estimations based on cross-sectional data, and

> 30 See for example Bertrand and Mullainathan, 2001.

> 31 Gelb, Ramachandran, Kedia-Shah and Turner. 2007: 2.

10