Made to be broken? A theory of regulatory governance and rule-breaking entrepreneurial action

David S. Lucas, Caleb Fuller and Mark D. Packard

Journal of Business Venturing, 2022, vol. 37, issue 6

Abstract: Although regulatory institutions are said to enable and constrain entrepreneurial action, ventures frequently emerge with products, processes, and business models that skirt or defy these rules. We provide a theory of rule-breaking entrepreneurial action, focusing on why entrepreneurs are only sometimes constrained by law, regulation, and other formal constraints. In this, we attend to the dual roles of social context and subjective interpretation. Drawing on the sociology of law, we position regulatory rules within a system of governance, where public actors and legal intermediaries collectively construct the meaning of rule compliance and enact sanctions to enforce this interpretation. We leverage this to describe how enforcement imperfections and heterogeneous rule interpretations give rise to the possibility of ‘black market’ and ‘gray market’ entrepreneurial actions. In turn, we theorize how actors' knowledge and motivations can lead them to identify and exploit breakable rule conditions via the creation of new ventures. We illustrate our framework with examples from startups Zenefits, Square, and Aereo. Our framework changes the way we think about regulatory institutions and entrepreneurial action by presenting governance as a multilevel, social, and subjective process—such that some actors conform their entrepreneurial activities to established rules while others recognize and exploit breakable rule conditions.

Keywords: Entrepreneurial action; Rule-breaking; Institutions; Governance; Legal intermediaries; Sociology of law; Regulation (search for similar items in EconPapers)
JEL-codes: B52 B53 K40 L26 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0883902622000623
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbvent:v:37:y:2022:i:6:s0883902622000623

DOI: 10.1016/j.jbusvent.2022.106250

Access Statistics for this article

Journal of Business Venturing is currently edited by S. Venkataraman

More articles in Journal of Business Venturing from Elsevier
Bibliographic data for series maintained by Catherine Liu ().