The Political Economy of Venture Creation

Research on institutional quality in management and economics explores the institutional conditions under which entrepreneurship thrives and makes positive contributions to societal well-being. Scholars working in this line of inquiry examine hypotheses about the social consequences of entrepreneurial efforts to earn residual profit, and the contexts within which these consequences vary. Baumol (1990) and Murphy, et al., (1991) were among the first to focus on a particular aspect of institutional quality: The connection between the structure of political, social and legal institutions, and the allocation of entrepreneurial talent and effort toward either productive (value enhancing) or unproductive (rent seeking) enterprise. The research presented here builds further on these ideas by considering whether productive and unproductive activities are substitutes, complements, or independent with respect to each other, by measuring their impacts on productivity and development, and by examining the role of institutional variation in moderating these relationships.