How Transaction Cost Economics Reveal the Dual Nature of Entrepreneurial Ecosystems

Abstract

The entrepreneurial ecosystems literature is marred by a reliance on vague causal explanations, preventing this burgeoning concept from adequately specifying how it supports entrepreneurial activity. To provide further insight into the functioning of entrepreneurial ecosystems, I interpret them as a form of market governance that generates economies for entrepreneurs’ transactions. This relationship between entrepreneurs and the ecosystems they inhabit appears to be largely beneficial but is not without limits. An examination of the special case of nascent entrepreneurs points to ways in which elements of entrepreneurial ecosystems can also create diseconomies, particularly through over-embeddedness, congestion, and exclusion factors. I conclude that an alignment of entrepreneurs’ specific conditions with ecosystem elements is needed to maintain low transaction costs, introducing a key contingency for the efficacy of entrepreneurial ecosystems. Future research paths are suggested to further probe this relationship, particularly through case study approaches.