State Agency Discretion and Entrepreneurship in Regulated Markets

Abstract

Barriers to entry in regulated markets are frequently conceptualized as static features that must be removed or overcome if new entrants are to successfully enter a market. However, government institutions regulating markets often consist of multiple levels existing in tension with one another. We suggest that this tension may render regulatory barriers to entry more malleable, even in the absence of policy changes. To test this proposition, we bring the administrative state center stage and examine how regulatory discretion—the flexibility that regulatory agency officers have to interpret and implement public policies created by elected officials—can influence market entry of new ventures, using data on regulatory approval of hydroelectric facilities in the United States from 1978 to 2014. We find that increased state agency discretion improves outcomes for new entrants by reducing the effectiveness of incumbent firms’ political influence and creating opportunities for entrepreneurs to leverage regulators’ institutional logics.

Keywords: Entrepreneurship, Institutional Theory, Nonmarket Strategy, Regulated Markets, Institutional Logics, Renewable Energy, Sustainability

JEL Classification: M10