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Evasive entrepreneurship

Abstract

We argue that evasive entrepreneurship is an important, although underrated, source of innovation, and provide the first systematic discussion of the concept. We define evasive entrepreneurship as profit-driven business activity in the market aimed at circumventing the existing institutional framework by using innovations to exploit contradictions in that framework. We formulate four propositions of evasive entrepreneurship and illustrate them with a number of real-life examples, ranging from a secret agreement among Chinese farmers in the 1970s to activities of rides-for-hire start-ups in the modern sharing economy. We demonstrate that while evasive entrepreneurship can either be productive, unproductive, or destructive, it may prevent economic development from being stifled by existing institutions during times of rapid economic change. Furthermore, it can spur institutional change with important welfare effects.

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Notes

  1. Coyne and Leeson (2004) do not give a formal definition of the notion, although they come close when stating (p. 237): “Evasive activities include the expenditure of resources and efforts in evading the legal system or in avoiding the unproductive activities of other agents.”

  2. The pursuit of economic activity in defiance of formal institutions has previously been discussed. See, for example, Bruton et al. (2012) and Webb et al. (2013).

  3. Williamson (2000) defines four levels of institutional social analysis with regard to their frequency of change: (1) embeddedness (informal institutions), (2) institutional environment (formal rules of the game), (3) governance (play of the game), and (4) resource allocation and employment (the market level). This hierarchy has previously been employed in relation to entrepreneurship by Aidis et al. (2008) and Estrin et al. (2013).

  4. The Queen said to Lee: “Thou aimest high, Master Lee. Consider thou what the invention could do to my poor subjects. It would assuredly bring to them ruin by depriving them of employment, thus making them beggars” (Acemoglu and Robinson 2012, p. 182). Lee moved to France, where he obtained a patent from the French king Henry IV.

  5. Recent research on the informal economy (cf. Webb et al. 2014) provides additional examples of activities that can be categorized as evasive entrepreneurship. See, for example, Lee and Hung (2014), a case study of the emergence of the informal Chinese Shan-Zhai mobile phones industry, which grew to threaten the market shares of the state-licensed national champions.

  6. Uber is an American venture-funded start-up and transportation network company. It launched its mobile application software in San Francisco in 2010. Lyft is a privately held, San Francisco-based transportation network company. In contrast to Uber, Lyft drivers do not charge fares; instead, they receive “donations” from their passengers.

  7. Since we disregard informal institutions, we do not consider instances of what Webb et al. (2009) define as institutional incongruence, that is, a difference between what formal institutions and informal institutions (such as norms, values, and beliefs) define as legitimate.

  8. For a related approach, see Foss et al. (2007), who discuss entrepreneurial employees, or proxy entrepreneurs, and ask whether the firm’s organizational structure can be made to encourage proxy entrepreneurship if it increases firm value and discourage it if it destroys value.

  9. Under unstable institutional circumstances, even organized crime can provide a measure of stability and predictability that enables agents to undertake productive economic activities (Bandiera 2003; Milhaupt and West 2000; Sutter et al. 2013). As Milhaupt and West (2000, p. 43) argue, this result is “an entrepreneurial response to inefficiencies in the property rights and enforcement framework supplied by the state.” Whether this response outweighs the unproductive activities such syndicates also engage in is another matter.

  10. However, large companies that face disruption from sharing firms have embraced the business model themselves and acquired shares in sharing rivals (The Economist 2013). Furthermore, incumbent taxi companies have responded through imitation, such as by establishing their own smartphone dispatch services, which demonstrates how evasive entrepreneurship has considerable disruptive effects both on the market equilibrium and on the institutional equilibrium.

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Acknowledgments

We are grateful for useful comments and suggestions from Niclas Berggren, Wolf von Laer, Tomasz Mickiewicz, Erik Stam, and Karl Wennberg. Financial support from the Jan Wallander and Tom Hedelius Research Foundation is gratefully acknowledged.

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Elert, N., Henrekson, M. Evasive entrepreneurship. Small Bus Econ 47, 95–113 (2016). https://doi.org/10.1007/s11187-016-9725-x

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Keywords

  • Entrepreneurship
  • Evasion
  • Innovation
  • Institutions
  • Regulation
  • Self-employment

JEL Classifications

  • L5
  • M13
  • O31
  • P14