The Interaction of Entrepreneurship and Institutions

32 Pages Posted: 19 Apr 2010 Last revised: 13 Apr 2019

See all articles by Magnus Henrekson

Magnus Henrekson

Research Institute of Industrial Economics (IFN)

Tino Sanandaji

Research Institute of Industrial Economics (IFN)

Date Written: April 19, 2010

Abstract

Previous research, notably Baumol (1990), has highlighted the role of institutions in channeling entrepreneurial supply into productive, unproductive or destructive activities. However, entrepreneurship is not only influenced by institutions - entrepreneurs often help shape institutions themselves. The bilateral causal relation between entrepreneurs and institutions is examined in this paper. Entrepreneurs affect institutions in at least three ways. Entrepreneurship abiding by existing institutions is occasionally disruptive enough to challenge the foundations of prevailing institutions. Entrepreneurs sometimes have the opportunity to evade institutions, which tends to undermine the effectiveness of the institutions, or cause institutions to change for the better. Lastly, entrepreneurs can directly alter institutions through innovative political entrepreneurship. As business entrepreneurship, innovative political activity may be productive or unproductive, depending on the incentives facing entrepreneurs.

Keywords: Entrepreneurship, Innovation, Institutions, Regulation, Self-employment

JEL Classification: L5, M13, O31, P14

Suggested Citation

Henrekson, Magnus and Sanandaji, Tino, The Interaction of Entrepreneurship and Institutions (April 19, 2010). IFN Working Paper No. 830, Available at SSRN: https://ssrn.com/abstract=1592400 or http://dx.doi.org/10.2139/ssrn.1592400

Magnus Henrekson (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

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Tino Sanandaji

Research Institute of Industrial Economics (IFN) ( email )

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Stockholm, SE-102 15
Sweden
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