The Origin of the Entrepreneur and the Role of the Innovation Commons

14 Pages Posted: 13 Nov 2016

Date Written: November 11, 2016


We introduce the proto-entrepreneur as an economic agent who must first — i.e., before acting entrepreneurially — coordinate non-price information with others in order to reveal exploitable opportunities. Entrepreneurship, therefore, involves dual economic discovery problems, each of which may hold different efficient institutional solutions. Applying transaction cost economics logic to this problem, we reveal what we call an ‘entrepreneurial fundamental transformation’: while the entrepreneurial process begins with proto-entrepreneurs undertaking non-price coordination in polycentric collective action governance structures called innovation commons (Allen & Potts, 2016), it ends with integration in the hierarchical start-up firm. This governance shift, we argue, is the result of falling structural uncertainty — as unknown complementary collaborators become known — and rising idiosyncratic quasi-rents, both of which bring contracting hazards and move the economising structure towards the nascent firm.

Keywords: Entrepreneurship, fundamental transformation, transaction cost economics, innovation commons

JEL Classification: D02, D23, D71, D80, L24, O31, O38

Suggested Citation

Allen, Darcy and Potts, Jason, The Origin of the Entrepreneur and the Role of the Innovation Commons (November 11, 2016). Available at SSRN: or

Darcy Allen (Contact Author)

RMIT University ( email )

440 Elizabeth Street
Melbourne, 3000

Jason Potts

RMIT University ( email )

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