Entrepreneurship and Institutions

Abstract

In this paper entrepreneurs are defined as agents who bring about economic change by combining their own effort with other factors of production in search of economic rents. The institutional setup is argued to determine both the supply and direction of entrepreneurial activity. Four key institutions are explored more closely: property rights protection, savings policies, taxation and the regulation of labor markets. Institutions have far-reaching effects on entrepreneurship, and they largely determine whether or not entrepreneurial activity will be socially productive. Due to the responsiveness of entrepreneurship to the institutional setup it is maintained that in-depth analyses of specific institutions are required in order to further our understanding of the determinants of entrepreneurial behavior and the economic effects of entrepreneurship. The paper also demonstrates that it is problematic to use self-employment as an empirical proxy for productive entrepreneurship.JEL Codes: H32; L5; L25; M13; O31; P14.

Entrepreneurial aspirations, motivations, and their drivers

“…Future research should seek to take into account such dynamic aspects. Furthermore, in this paper we look at only one aspect of a country's institutional setup (i.e., social security arrangements) and future empirical research should include other institutional elements when investigating the factors that may encourage or discourage various types of ambitious entrepreneurial activity, such as taxation and labor market regulation systems (Henrekson 2007) or education (Levie and Autio 2008). It would also be desirable to use indicators for the social security position of entrepreneurs (relative to that of employees), which is currently not possible due to a lack of data (Hessels et al 2007).…”

“…Furthermore, relying on new institutional economics that emphasizes that institutions may both enable and constrain the actions of economic agents (North 1990;Williamson 1998) it can be argued that the supply of entrepreneurship as well as its allocation across productive and unproductive activities is likely to be affected by the institutional setup of societies (Henrekson 2007). In this respect welfare state institutions may be of particular relevance.…”

Entrepreneurship and second-best institutions: going beyond Baumol’s typology

“…7 It is important to realize that there is in principle no difference in this respect between the possession of a patent and the possession of knowledge of how to best avoid costs imposed by the tax code, or the possession of highly valuable production knowledge and valuable personal connections enabling one's firm to circumvent cumbersome regulations even if this requires paying kickbacks to government officials. 5 See, e.g., Lewin and Phelan (2001), Alvarez (2007) and Henrekson (2007) for a discussion of entrepreneurial rents using the term as it is used here. 6 Few rents last forever, and the durability varies substantially.…”

The nature of corruption affecting entrepreneurship in transition economies: Some lessons from Montenegro

“…A stable legal framework with well protected property rights also promotes planning and growth, as well as preventing the ad hoc expropriation of the fruits of entrepreneurship (Baumol 1990;Henrekson 2007). However, the experience of entrepreneurs in many emerging economies has been that the juridical system is incapable of adequately protecting property rights and of resolving business disputes (Manolova and Yan 2002).…”