Unproductive Entrepreneurship Research Articles

The institutional context, entrepreneurship decisions, and venture types: evidence from Mexico

Purpose The research aims to applying Baumol’s framework to address some research gaps in the literature. This paper aims to analyze how institutional variations at the subnational level impact entrepreneurship decisions and the path toward productive or unproductive entrepreneurship in an institutionally underdeveloped country. The results offer potentially new theoretical insights and practical implications for developing or emergent countries. Design/methodology/approach The research applies Baumol’s framework to Mexico’s context. The research collects data compounded by individual- and state-level variables from diverse sources for the 32 Mexican states. The individual level and some controls were obtained from sources of regular frequency, but the institutional variables were derived from surveys of irregular frequency, nonsynchronic and mostly nonoverlapping, which required aligning and centered them around 2016 and 2019 to match with the individual variables. The authors apply multilevel nonlinear mixed-effects probit regression to test nine hypotheses regarding the impact of institutional variables on entrepreneurial decisions and the path toward productive or unproductive entrepreneurship. Findings Improved formal institutions across the Mexican states reduce the entrepreneurship probability, implying interactions with other variables and indirect effects; encourage the selection of productive entrepreneurship, e.g. formal ventures; and discourage self-employment. Consequently, those institutions do not encourage entrepreneurship selection as an occupation but entrepreneurial quality, i.e. the selection of productive-formal entrepreneurship and larger ventures. Deficient informal institutions increase the entrepreneurship and formal entrepreneurship probabilities, implying the interactions with other variables and indirect effects and supporting the corruption “greases the wheels” hypothesis, consequently encouraging productive ventures. New evidence of the positive relationship between criminality and entrepreneurship types in Mexico is reported. Research limitations/implications Our findings indicate important impacts of the individual-level variables on the entrepreneurship decisions and that most of those decisions are potentially necessity driven and a minority are driven by opportunity, given their relationship with the macroeconomic controls and the institutional variables. The authors report mixed results on the relationship between institutions and entrepreneurship partially consistent with the literature; some results contribute additional evidence on controversial hypotheses or imply the existence of indirect effects. Overall, the results suggest that institutions impact the individual decisions to venture and the type of venture consequently affecting the amount and quality of entrepreneurship across states. Originality/value The research addresses some of the literature gaps by providing empirical evidence on a middle-income country and how diverging regional institutional contexts, including formal and informal institutions, impact the individual’s entrepreneurship decisions within an institutionally underdeveloped country. The paper contributes new knowledge and insights into entrepreneurship in emerging or developing countries with implications for Baumol’s framework in this context and adds to the debated hypothesis on the relationship between some institutions, e.g. corruption and criminality and entrepreneurship.

Richard Cantillon and public policy

PurposeRichard Cantillon (168?–173?) is known as the first economic theorist and the founder of entrepreneurship theory. Few would describe him as engaged in policy issues, but he did write about policy issues of interest to scholars interested in entrepreneurship and economic development. He has long been classified as a mercantilist of a bygone day, even as many believe he was resolute in not commenting on policy matters at all. His views could be a key to pursuing the policy goals of entrepreneurship scholars.Design/methodology/approachThe authors look at several topics in Cantillon's Essay on the Nature of Commerce in General (1755), read in its historical/political context, to better understand Cantillon's views. The authors then relate Cantillon's views to recent interventions in the economy.FindingsThe authors found that Cantillon held clearly antimercantilist, or free market, views. The authors also recognize that his views, given his status as the founder of entrepreneurship theory, can contribute to modern economics. As in Cantillon's day, institutional uncertainty has negative economic consequences and often leads to unproductive entrepreneurship, which is only made worse by the increased complexity of the modern economy.Originality/valueThe authors clarify Cantillon's views against modern-day interpretations and offer a clearer understanding of Cantillon's writings in the context of his Essay on the Nature of Commerce in General (1755). The authors also show the importance of the proper role of institutions for productive entrepreneurship—and the danger of unproductive or destructive entrepreneurship when such institutions do not have policies favorable to entrepreneurship.

Indigenous entrepreneurship? Setting the record straight

We provide an historical essay synthesising the macro societal processes that affected Indigenous peoples’ entrepreneurial and trade activities in Canada from pre-contact to 1920. Adopting Indigenous entrepreneurship and institutional theory lenses, we find that the evolution of legal, political, and socio-economic forces converged to undermine Indigenous peoples’ entrepreneurial activity and well-being in Canada. Our narrative suggests a dynamic view of the relationship between entrepreneurship and institutions and the role of power. Whereas Baumol’s view is that institutions shape entrepreneurship by determining the relative payoffs to productive or unproductive entrepreneurship, our narrative shows the ways in which unequal benefits to various entrepreneurs change institutions over time. This advances the field of entrepreneurship by historically situating entrepreneurial processes in settler society and exposing the role of power in the relationship between entrepreneurship and institutions in society over time.

Real-Estate Entrepreneurship from Baumol's Productive and Unproductive Typology: A Contestable Markets Approach

The role of innovation in economic development has long been a topic of discussion among economists. Despite that, the economic pay-off mechanisms which support or hinder innovative entrepreneurial acts, particularly in the emerging economy context are significantly underexplored in academic studies. In this study, we aim to fill this important gap in the literature by taking Baumol’s contestable markets theory and the typology of productive and unproductive entrepreneurship. As Baumol has advocated, the economies that offer higher pay-offs to productive entrepreneurial acts are more likely to thrive mainly due to the increased capacity of economic growth, while developing and poor economies struggle. In this study, we posit that in the developing and emerging market contexts, formal policies are claimed to prioritize the production of more innovative and productive start-ups and a climate that supports and fosters productive entrepreneurial acts. Despite that, there are still major administrative, social and cultural barriers towards creation of innovative start-ups and a productive entrepreneurship ecosystem. Here, continuing political, economic and social support towards unproductive entrepreneurship acts, in particular real-estate entrepreneurship emerges as one of the main factors that hinder the flow of funds towards innovation and technology. We thus argue that, being unable to balance the role of these unproductive entrepreneurial acts with productive ones in economy significantly deteriorates the sustainable economic growth and a high standard of living in emerging and developing economy contexts. In the implications section, several precautions and support mechanisms for overcoming the barriers towards productive entrepreneurship are presented and discussed.

In Institutions We Trust? Trust in Government and the Allocation of Entrepreneurial Intentions

Whether entrepreneurship generates economic growth depends on the institutional environment due to its impact on the mix of productive and unproductive entrepreneurship in the economy. The incentive structure embedded in each society affects whether talented people become entrepreneurs and potentially, the extent to which they engage in more productive forms of entrepreneurship. We examine how trust in institutions affects the entrepreneurial intentions of potentially productive entrepreneurs. We utilize the unique event surrounding the impeachment of South Korea’s previous president. The event improved people’s trust in the government because it was ultimately the people’s protests and demands that led to the impeachment of the president for influence peddling and extracting personal rents from businesses. By surveying the same individuals before and after the impeachment ruling, we identify people’s changes in trust in government and various institutions. We find that increased trust in institutions increases one’s intent to start a business within five years. Moreover, we show that the relationship between trust in institutions and entrepreneurial intention is significantly stronger for engineering majors from top universities.Supplemental Material: The e-companion is available at https://doi.org/10.1287/orsc.2022.1583 .

It is not OK but it works – unproductive entrepreneurship, the case of Poland

The concept of unproductive entrepreneurs was introduced to science by Baumol, who pointed out the differences in business output between countries. Unproductive behaviour of entrepreneurs is often a consequence of ineffective institutions used by entrepreneurs for rent seeking. The aim of this article is to examine subjective norms (S.N.) and attitudes regarding specified types of unproductive entrepreneurship, which in many cases takes the form of unethical or even unlawful behaviour among entrepreneurs in Poland. Examples of such behaviour are: bribery and tax evasion, burdensome lawsuits, often unfounded or lobbying. The structure of the research was based on Baumol’s work while the research model was based on Ajzen’s theory of planned behaviour (T.P.B.). In this article we argue that unproductive entrepreneurship in transforming economies is often forced by inefficient institutions and the desire to avoid bankruptcy. The results of the survey carried out among 270 Polish entrepreneurs indicated a permissive and subjective standard regarding tax evasion when the existence of their business is endangered, and more negative behavioural beliefs (B.B.) regarding the effectiveness of tax evasion than regarding the effectiveness of paying bribes (P.B.).

An Anatomy of Failure: China's Wind Power Development

China is currently the world’s largest installer of wind power. However, with twice the installed wind capacity compared to the United States in 2015, the Chinese produce less power. The question is: Why is this the case? This article shows that Chinese grid connectivity is low, Chinese firms have few international patents, and that export is low even though production capacity far exceeds domestic production needs. Using the tools of Austrian economics, China’s wind power development from 1980 to 2016 is documented and analyzed from three angles: (a) planning and knowledge problems, (b) unproductive entrepreneurship, and (c) bureaucracy and government policy. From a theoretical standpoint, both a planning problem and an entrepreneurial problem are evident where governmental policies create misallocation of resources and a hampering of technological development.

Is shame-proneness the missing link between social norms, policymaking and productive entrepreneurship?

PurposeThe purpose of the paper is to establish the need to study the shame-proneness trait of entrepreneurs – what is it and why is it important to study.Design/methodology/approachIn this conceptual paper, the authors argue that shame-proneness is an important understudied trait of entrepreneurs and put up a case for further research. The authors argue that shame-proneness moderates the effect of social acceptability on opportunity exploitation decisions. The authors also argue that productive entrepreneurship can be promoted and unproductive entrepreneurship can be prevented through policy intervention, and the level of intervention can be determined by knowing the shame-proneness level of entrepreneurs.FindingsThe key argument is the following: an entrepreneur is homo economicus and homo sociologicus, i.e. she is driven both by rational economic value consideration and by the prevalent social norms, which influence opportunity exploitation decisions. Since shame enforces compliance with social norms, it is vital to study entrepreneurs' shame-proneness to understand entrepreneurial founding across different regions. Knowing the level of shame-proneness of entrepreneurs in a given region would help the government devise effective interventions to promote productive entrepreneurship and deter unproductive or destructive entrepreneurship.Originality/valueThis paper is an original creation of the authors.

Religion and unproductive entrepreneurship: The role of risk aversion

Institutions can shape the reward structure in the economy and thereby influence the allocation of entrepreneurship between productive and unproductive activities. This paper investigates the effect of religion, one important component of informal institutions, on unproductive entrepreneurship. Using a nationally representative survey on private enterprises in China, we find that religious entrepreneurs devote more of their resources, both in terms of money and time, to unproductive activities such as building social relations than their nonreligious peers. We further find that religion plays a significant role only in regions with weak regulatory institutions and/or for entrepreneurs vulnerable to institutional risks. Drawing on the close link between risk-aversion and religion, our results suggest that religious entrepreneurs engage in unproductive activities so as to reduce institutional risks in their business operations.

CОЦИОКУЛЬТУРНЫЕ КООРДИНАТЫ ПОЛИТИЧЕСКИХ СТРАТЕГИЙ СОВРЕМЕННОГО ПРЕДПРИНИМАТЕЛЬСТВА: РОССИЙСКИЙ КЕЙС

The article examines the value foundations of entrepreneurial activity in Russia, reveals the national specifics of interaction between the state and business. In this regard, the authors analyze the causal mechanisms and socio-cultural prerequisites for structural deformations of classical forms of entrepreneurship in Russian society, the stereotypes of articulation of political and ethical justifications by entrepreneurship of economic strategies in their relationship with the characteristics of national human capital. Based on the methodological premises of W. Baumol's concept, the authors describe the patterns of transformation of entrepreneurial values, paying special attention to the sociocultural and political factors in the development of productive, unproductive and destructive (destructive) entrepreneurship in modern Russia. Productive entrepreneurship develops due to the generation of innovative rent, unproductive entrepreneurship makes a profit due to the redistribution of the state treasury and assets, and destructive entrepreneurship develops due to the use by political actors of their capabilities to force entrepreneurs to pay political rent. Historical examples demonstrate the role of private Russian capital in creating a system of "political rent seeking" unproductive for society and creating political preferences for the realization of economic interests. The focus of the article is also concentrated on the study of the correlation of the value attitudes of Russian business with the resource-oriented economy and the peculiarities of the Russian political regime, the historical and cultural context of the political discourses of Russian business entities, which creates, establishes or imposes rules and norms not only economic, but also political, social, legal behavior. The manifested values, meanings and political and ethical substantiation by Russian business of everyday economic practices and their movement into the political sphere are revealed; historical forms of expression of political positions by entrepreneurship are decoded. On the other hand, the article analyzes the political mechanisms of the state's construction of the institutional design of entrepreneurship and its management.

Entrepreneurial ecosystems in cities: The role of institutions.

Entrepreneurship activity varies significantly across cities. We use the novel data for 1,652 ecosystem actors across sixteen cities in nine developing and transition economies during 2018-2019 to examine the role that institutional context plays in facilitating the productive entrepreneurship and reducing the unproductive entrepreneurship. This study is the first to develop and test a model of multi-dimensional institutional arrangements in cities. It demonstrates that not just that institutions matter in shaping the entrepreneurship ecosystem in cities, but in particular those institutional arrangements enhancing the productive and reducing unproductive entrepreneurship. Our findings suggest that differences between normative, cognitive, and regulatory pillars are associated with variance in both types of entrepreneurship in cities. For the formation of productive and high-growth entrepreneurs, all three pillars of institutional arrangement matter. For unproductive entrepreneurship normative pillar of institutions and the role of civil society matter most. This study has theoretical and practical implications for entrepreneurship ecosystem policy in cities.

Calling Baumol: What Telephones Can Tell Us About the Allocation of Entrepreneurial Talent in the Face of Radical Institutional Changes

The aim of this paper is to test a key aspect of Baumol's theory that the allocation of entrepreneurial efforts toward its productive (e.g., start-up activity) or unproductive (e.g., rent-seeking) use depends on institutional conditions. In contrast to previous research, we study a context where a radical and exogenous institutional change took place that dramatically changed the rewards and opportunities of running a firm. We analyze at the individual level who decides to start a venture in East Germany after the fall of the Berlin Wall. We find that a significant number of people that demonstrated a strong commitment to the anti-entrepreneurial socialist regime were active in launching new ventures soon after the fall of the Berlin Wall. This pattern cannot be explained by having elite status during the socialist regime. We argue that this commitment to socialism reflects rent-seeking, a type of unproductive entrepreneurship. Once institutions change radically, their entrepreneurial efforts are redirected towards productive entrepreneurship (start-up activity). Regime commitment is captured by information from the 1990 wave of the German Socioeconomic Panel (GSOEP) that includes information on whether East German respondents had a telephone during the socialist era, a typical reward for pronounced efforts for the socialist regime. We find that this group of people were more likely to have an entrepreneurship- prone personality profile, had a higher propensity of becoming selfemployed, and were more successful entrepreneurs. Our results confirm Baumol's theory in a setting that resembles the historical examples Baumol used to make his general argument.

Dark Entrepreneurship, the ‘Dark Triad’ and Its Potential ‘Light Triad’ Realization in ‘Green Entrepreneurship’

This contribution seeks to achieve three main objectives. First it draws on a substantial, but often overlooked literature on wide-scale international decline in entrepreneurship as recorded in the ‘business dynamics’ literature. This has serious implications for academic study of entrepreneurship which must re-direct its focus to problems of entrepreneurial unattractiveness dating from at least the 1980s. More important, public policy makers and political ideologists need further to be apprised of the erroneous nature of many of their beliefs and further change the subsidy regimes they bestow on often unproductive entrepreneurship. Second, the contribution seeks one part of the explanation of the declining attractiveness of entrepreneurship in the psychology of the ‘dark triad’ of negative personality traits that has been connected to the literature on ‘dark entrepreneurship’ as a possible and partial, but important reason for the growing unattractiveness of entrepreneurship. The contribution devotes attention to the ‘Mindfulness’ movement in considering the detoxification of ‘dark entrepreneurship’. Finally, in what may be an original response to this analysis, the contribution draws attention to recent work on a putative ‘light triad’ of personality traits and applies it, possibly for the first time, to secondarily researched accounts of ‘green entrepreneurship’. The conclusion is that there may be a future for green entrepreneurship as a means for recovery in the current status of more traditional ‘business dynamics’.

Entrepreneurship, culture, and the epigenetic revolution: a research note

We show how the type of alcohol consumed is related to the type of entrepreneurship present for economies in Europe. We differentiate between beer-, wine-, and spirit-drinking countries and distinguish between productive, unproductive, and destructive entrepreneurship. The underlying links do not emerge from drinking per se but rather the drinking habits and taste for beverage types capture deep cultural features and cultural similarities amongst the countries. Societies that prefer to drink beer are closer to each other culturally than those which prefer drinking wine or spirits. Therefore, the taste for alcohol type is merely an instrument in explaining cultural and institutional differences across entrepreneurship. Broadly speaking, beer-drinking countries are characterized by higher shares of productive entrepreneurship, wine-drinking countries with unproductive entrepreneurship, and spirit-drinking countries with destructive entrepreneurship. We discuss mechanisms in which the results are found and highlight a new research agenda, emphasizing the potential role of epigenetics.

Productive and Unproductive Entrepreneurship within Crony Capitalism

Cronyism is the practice of favoritism based on connections. The institutionalization of cronyism as a common practice within a business context can promote rewards for unproductive individual behaviors at the expense of productive behaviors. This study strives to explain and demonstrate how the prevalence of cronyism can increase unproductive entrepreneurship and decrease productive entrepreneurship within different countries. Moreover, this research elaborates on two major mediating mechanisms–market competition and institutional trust–through which cronyism influences entrepreneurial behaviors.

Input complementarity, patent trolls and unproductive entrepreneurship

I introduce and analyze an equilibrium model of discovery, innovation, patenting and infringement. Firms that innovate must adapt complementary inputs, and are ex ante uncertain about whether adaptations will be costly and whether they will infringe other patents. If adaptation requires undiscovered technology, then the firm faces a direct cost but never infringes another firm’s patent. If adaptation requires technology previously discovered by another firm, then the firm faces no direct cost but may infringe another firm’s patent and pay a licensing royalty. The main analysis considers the desirability and feasibility of having some firms specialize in discovery and patenting—that is, behave as non-practicing entities—while other firms innovate. I find that non-practicing entities increase welfare only if the cost of discovery and patenting is sufficiently low. But if royalties are too high, then too many firms choose to be non-practicing entities instead of innovating, and welfare is higher without them. If litigation is costly, then it may be optimal to deter non-practicing entities by eliminating patents for discoveries.

Institutions, Entrepreneurship, and Corruption

This paper examines the public-interest theory of regulation by exploring the relationship between market activity, regulation, economic freedom and the direction of entrepreneurial efforts. Cross country data on corruption, regulation, and entrepreneurship are employed to determine whether a relationship exists between particular market institutions and unproductive (rent seeking) entrepreneurship as defined by Baumol (1990). We employ data from the Global Entrepreneurship Monitor, the World Bank, and the Economic Freedom of the World Report to examine the relationship between perceived corruption levels, formal institutions, and entrepreneurial activity for 88 countries. Our results indicate evidence of a trade-off between productive, value-creating activities and unproductive, extra-legal uses of public resources for private gain. This trade-off, and the institutions that incentivize it, appear to be especially important in low-to- middle income countries with weak governance mechanisms and limited access to financial resources.

Military strategy and unproductive entrepreneurship in warring states China

Institutions play a vital role in allocating entrepreneurial talent in society. Specifically, the payoffs to different kinds of innovation influence the allocation of entrepreneurial talent between productive, unproductive, and destructive behavior. I apply this insight to the case of the military classics of China’s Warring States period, 475–221 BCE. The Warring States witnessed political centralization and incessant conflict that helped inspire numerous economic and social innovations. Among these are the appearance of many texts pertaining to governance and public policy, particularly writings on military strategy. Excellence in strategy and planning were highly rewarded during this period, and competing states even developed an interstate market for military talent. However, success in commerce was often not only frowned upon, but harshly punished. This tendency was reinforced by the rise of Legalist policies, which often recommended suppressing the merchant class relative to agricultural production and militarism. These institutional conditions limited the amount of ‘productive’ market entrepreneurship in the period, which was often instead channeled into ‘unproductive’ entrepreneurship, especially the areas of military organization and strategy.

Compound Voids and Unproductive Entrepreneurship: The Rise of the “English Fever” in China

:China has emerged as an economic power due, in part, to government policies that opened China to the world and created a modern consumer culture. One of these policies is the advancement of English-language education, including private providers, which has spawned the “English Fever” phenomenon. We use the unique context of the private English-language education industry in China to illustrate the concept of “compound (institutional) voids” and their relationship to unproductive entrepreneurship. Our contribution is in untangling some of the complexities related to institutional relationships, and in describing how compound voids increase the likelihood of rent-seeking behavior.

Role and Responsibilities of Managerial Economists: Empowering Business through Methodology and Strategy

An appreciation of economics and the general workings of the economy have become increasingly necessary to make sense of government policy-making, the conduct of businesses and the enormous changes in economic systems, which are occurring throughout the world. With the increasing importance of behavioural economics, for business and management, especially with the recent global downturn, managers need to be effectively equipped with economic theories, tools and techniques. Their expertise, efficiency and experience, then will enable them to manage any crisis, adequately. Both theoretically and practically, it is a bridge-building exercise between business and economics. The excellence that managers attain will be rewarding to them and the business environment. This paper highlights how modern manager ought to be a strategist and an economist in terms of her role, responsibilities and qualities.It analyses the emerging parametric convergence between economics and business. It calls forincentivising smart people to engage more in productive rather than unproductive entrepreneurship. The intent is to make way for empowering business, with both firm and market advantages.