The Individual-Opportunity Nexus
Chapter 7: The Environmental Context of Entrepreneurship
As I explained in Chapter 6, people do not make decisions to exploit entrepreneurial opportunities in a vacuum, but instead are influenced by the context in which they operate. One important dimension of the context that influences opportunity exploitation is the institutional environment. The institutional environment consists of the economic, political and cultural context in which the entrepreneur finds herself. Thus, the institutional environment includes both the ‘rules of the game’ that economists believe generate incentives for certain types of action, and the social setting that sociologists believe determines legitimate and acceptable behavior. In this chapter, I explore the effect of the institutional context on the exploitation of entrepreneurial opportunity. AN ENVIRONMENT FOR PRODUCTIVE ENTREPRENEURSHIP Entrepreneurship researchers have long been interested in the institutional environment, both because the institutional context appears to influence entrepreneurial activity, and because it is amenable to the policy levers that government officials can use to influence the amount and form of entrepreneurial activity. Perhaps the most provocative thesis about the effect of institutional environment on entrepreneurial activity has been Baumol’s (1990) argument that the number of enterprising individuals and valuable opportunities is constant over time and place, with only the distribution between productive and unproductive forms varying across these dimensions. Baumol (1990) argued that society’s rules and norms create incentives that influence the form that entrepreneurial activity takes. In some societies, at certain points in time, institutional factors provide incentives for rent-seeking entrepreneurial activities (for example, crime and corruption) as opposed to socially productive entrepreneurial...
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