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The interaction of entrepreneurship and institutions

Published online by Cambridge University Press:  24 August 2010

MAGNUS HENREKSON  and
TINO SANANDAJI
MAGNUS HENREKSON*
Affiliation:
Research Institute of Industrial Economics (IFN), Stockholm, Sweden
TINO SANANDAJI*
Affiliation:
Harris School of Public Policy, University of Chicago, Chicago, IL, USA Research Institute of Industrial Economics (IFN), Stockholm, Sweden
*
*Email: magnus.henrekson@ifn.se
**Email: tino@uchicago.edu
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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. Like business entrepreneurship, innovative political activity may be productive or unproductive, depending on the incentives facing entrepreneurs.

Information

Type
Research Article
Information
Journal of Institutional Economics , Volume 7 , Issue 1 , March 2011 , pp. 47 - 75
Copyright
Copyright © The JOIE Foundation 2010

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