Institutions and Entrepreneurship

Douglass C North's essay on "Institutions", published in the Journal of Economic Perspectives (Vol 5, Winter 1991), was a compulsory reading during my MBA days. But as many B-school students, I too graduated barely managing to flip through the many seminal essays such as this. It was only two years thence on joining a small nonprofit outfit that was set-up to advance institutional development in the social entrepreneurship space,that this essay arouse a genuine curiosity. Fortunately now as part of academia, I have the opportunity to further my understanding of this concept of "institutions". Of late, my interests are particularly in studying the implications of institutions on the field of entrepreneurship and vice versa.

If institutions are, as Douglass North puts it, humanly devised formal rules (such as laws and constitutions) and informal constraints (such as customs,taboos and code of conduct) that structure political, economic and social interactions,then there is definitive reason to believe that institutions shape entrepreneurs and their choices. Consider for example the influence of religion on entrepreneurship. One empirical research conducted by David et al in 2007 highlighted that Christians are 2.9 percent, Muslims are 7.9 percent and Jains 27 percent more likely than Hindus to be self-employed. It concludes that Hindu religious values in fact have a bearing on this inhibited entrepreneurship. While this particular research talks about the entrepreneurial inclinations, it brings to question the influence of ethnicity on entrepreneurial success. Are entrepreneurs from certain ethnic background inherently better at spotting and tapping new opportunities? If so, can some of these practices be embedded in other ethnic groups?

How do institutions impact entrepreneurship? How do entrepreneurs advance institutional changes? What motivates entrepreneurs to advance institutionalization?

Similarly, entrepreneurship has been instrumental in bringing about institutional changes. One could see this in practice in the field of micro-finance. By demonstrating the financial sustainability of lending to the poor, entrepreneurs in the micro-finance space brought legitimacy to the field of financial services for the poor. This institutionalization, or a new social reality,  has been the result of embedding new operating procedures and policies in existing financial institutions.I am curious to study the kind of enterprises that have brought about similar institutional changes. How do these enterprises effectuate such a change? Under what conditions should/would entrepreneurs act to influence institutions?

It is at this intersection of institutions and entrepreneurship that I intend to gain additional understanding. The answer to these definitely seem to have implications in both theory and practice.

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