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Law and Entrepreneurial Opportunities

D. Gordon Smith

Brigham Young University - J. Reuben Clark Law School

Darian M. Ibrahim

William & Mary Law School

February 18, 2013

Cornell Law Review, Vol. 98, 2013

'Opportunity' is a central concept in entrepreneurship research, and this Article explores the relationship between law and entrepreneurial opportunities. We adopt the widely held view that entrepreneurial opportunities are ideas created by entrepreneurs, rather than resources waiting to be discovered. Of course, as with all products of the imagination, entrepreneurial opportunities draw on existing resources for inspiration, and we contend that some legal systems are better than other legal systems at encouraging entrepreneurs to think about existing resources in new ways. We also contend that when entrepreneurial opportunities are exploited, the inventory of resources expands, thus laying the foundation for the creation of more entrepreneurial opportunities. This 'opportunity cycle' leads to plentiful and continuous opportunity creation.

Legal rules play an important role in each stage in the opportunity cycle, and two sets of stories told about law are foundational to innovation research. The first is that property rights (i.e., rights to exclude) are essential in the development of innovative resources because property rights assure market participants that they can retain many of the benefits of their success. The second is that various sets of legal rules – including laws limiting barriers to entry, bankruptcy laws, and corporate laws relating to limited liability and asset partitioning – reduce the costs of entrepreneurial action and failure, thus emboldening entrepreneurs to exploit opportunities. Our thesis is that all of these stories are part of a grander tale about the opportunity cycle, and the central theme of that tale is that the promotion of entrepreneurial action is a fundamental value of the U.S. legal system, the expression of which through positive law inspires entrepreneurs to create more opportunities.

Number of Pages in PDF File: 40

Keywords: entrepreneurship, law and entrepreneurship, opportunity, property

JEL Classification: K11, K12, K22, K30, M13, O31, O34

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Date posted: February 18, 2013 ; Last revised: June 10, 2015

Suggested Citation

Smith, D. Gordon and Ibrahim, Darian M., Law and Entrepreneurial Opportunities (February 18, 2013). Cornell Law Review, Vol. 98, 2013. Available at SSRN: https://ssrn.com/abstract=2220075

Contact Information

D. Gordon Smith (Contact Author)
Brigham Young University - J. Reuben Clark Law School ( email )
422 JRCB
Provo, UT 84602
United States
801.422.3233 (Phone)
801.422.0390 (Fax)

Darian M. Ibrahim
William & Mary Law School ( email )
South Henry Street
P.O. Box 8795
Williamsburg, VA 23187-8795
United States
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