A Review and Synthesis of Nonmarket Entrepreneurship Literature

A brief overview of the nonmarket entrepreneurship literature reveals a plethora of terminology, with many partially overlapping definitions. Specifically, a number of “types” of entrepreneurship have been posited within the nonmarket entrepreneurial process, including at least “insti­tutional,” “public,” “political,” “social,” “constitutional,” and “cultural” entrepreneurship.

To structure the review, I position the types of nonmarket entrepreneurship found in extant literature in relation to Williamson’s (2000) institutional hierarchy. In his retrospective/prospective assess­ment of the New Institutional Economics literature—a cornerstone of the Virginia Political Economy school (Boettke and Marciano 2015)— Williamson presented a model of the institutional environment as a four- level hierarchy. This hierarchy effectively illuminates how various strands of “institutions-influenced” research within economics fit together, including transaction cost and property rights economics. I propose that this framework can also illuminate the nonmarket process literature. Specifically, the framework reveals that different scholars have focused on nonmarket entrepreneurship at different levels of the institutional hierarchy.

Level 1, “embeddedness,” deals with existing informal institutions: e.g., norms, beliefs, customs, and religion. Level 2, the formal institu­tional environment, captures the fundamental elements of the political structure: the “rules of the game” such as property rights and constitu­tions.

This framework allows us to make sense of nonmarket entrepreneur­ship: different types of nonmarket entrepreneurs act in relation to phenomena at different institutional levels. Thus, nonmarket entrepreneurs are change agents whose actions alter the institutional environment at each of the levels of the institutional hierarchy.

“Cultural entrepreneurs” seek to arbitrage norms and beliefs in order to in turn bring about informal institutional change (Level 1). “Consti­tutional” and “institutional” entrepreneurs pursue changes in the “rules about the rules” of the game, altering the fundamental set of formal institutions that govern interaction (Level 2). “Public” and (some) “polit­ical” entrepreneurs set out to alter the rules of the game in ways that benefit them (Level 3). Finally, some “political” and (most) “social” entrepreneurs arbitrage social and economic resources to engage in exchange within the given framework of rules and norms (Level 4)

Table 5.2 summarizes this synthesis of nonmarket entrepreneurship along the institutional hierarchy. Mapping the predominant types of nonmarket entrepreneurship onto the institutional hierarchy in this way yields two key benefits. First, it provides a framework to understand how these distinct types relate to one another. Second, it highlights the rich

Table 5.2 Nonmarket entrepreneurship and the institutional hierarchy

body of work in certain areas and the dearth in others.

Level 4 Nonmarket Entrepreneurship: Political and Social

Much of modern Austrian scholarship emerges from Virginia Political Economy school—a marriage of the Austrian and Public Choice tradi­tions, the latter of which deals with the economic analysis of political action. As such, it is unsurprising that perhaps the most well-trodden ground of the entrepreneurial nonmarket process relates to mundane, ever yday action in the political context. The study of such actions falls under the territory of political entrepreneurship (Wagner 1966).

Political entrepreneurship is typically understood as the purposeful action of self-interested individuals seeking to achieve their ends through the political process in the face of sheer ignorance. The unknowability of future outcomes—resulting in “alertness” to political profit “oppor­tunities”—is the source of the distinctive entrepreneurial element in this work (Coyne et al. 2010; Simmons et al. 2011). Uncertainty thus distin­guishes political entrepreneurship research from other scholarship in the public choice tradition, which also seeks to explain the role of individual interests and exchange in the public sector (Tullock 1967).

Early work on political entrepreneurship focused on lobbying efforts and redistributive policies, leading scholars to view political entrepreneurship as inherently wealth-destroying (DiLorenzo 1988). Political entrepreneurs exploit “political profit opportunities,” meaning they realize private gains by capturing concentrated redistributive bene­fits while dispersing those costs among the population. By contrast, Holcombe (2002) identifies the political entrepreneur as the driver of both efficiency increases in government operations as well as the impetus for redistribution—allowing for both “productive” and “preda­tory” political entrepreneurship.

Witcher and Campbell 2015). Interestingly, Coyne and coauthors suggest that the exploitation of unproductive political opportunities yields condi­tions that generate further political profit opportunities—resulting in an ongoing, nonproductive entrepreneurial process (Coyne et al. 2010).

I note that only “some” political entrepreneurship research occurs at level four. This is because the term has been used rather generally in discussion of many different types of political action. What distinguishes level four political entrepreneurship is that it occurs within existing rules. Such actions characterize the realm of “ever yday” political exchange and change; where the overall rules are left largely unaffected. The creation and enforcement of regulation are included here, however, since they deal with the carrying out of established legal mandates created by legislators. As Henrekson and Sanandaji write, “the expansion of a suburb entails new roads and public ser vices, and the individual who identifies and responds to this need is the political entrepreneur” (2011, 50). Similarly, Martin and Thomas (2013) discuss this kind of political entrepreneurship as the “lower tier” of their two-tiered model—relating to such things as the organization of coalitions. To the extent that political and “bureaucratic” entrepreneurship deal with rent-seeking activity over the implementation of regulations (e.g., Benson 2002), these actions correspond to the base level of the institutional hierarchy.

In addition, the growing field of “social entrepreneurship” operates principally at this level.

Level 3 Nonmarket Entrepreneurship: Public and Political

The next level deals with actions that seek to change the play of the game—typically through changing the rules of the game. Martin and Thomas (2013), mentioned above, illustrate level three entrepreneur­ship as a “higher tier” of political entrepreneurship. In general, however, nonmarket entrepreneurs operating at level three have been discussed predominately as public entrepreneurs.

Public entrepreneurship involves the creation and maintenance of rules of the game. Much of the Bloomington School, stemming from the work of Elinor Ostrom (1965), addresses a mix of public and private gover­nance solutions to potential sources of conflict in the allocation and use of common pool resources. These solutions establish rules that then govern future behaviors, facilitating coordination and cooperation within those roles. Note that level three nonmarket entrepreneurship addresses rules are “post-constitutional” in nature—dealing with rulemaking that exists within some broader constitutional-institutional framework.

Thomas and Thomas (2018) offer an intriguing example of level three nonmarket entrepreneurship in the United States market for blood. They build on the insight that entrepreneurs may seek to change the rules of the game in their favor when efforts to capture rents “within” those rules are thwarted (Martin and Thomas 2013).

A few papers extend public entrepreneurship theory drawing on Austrian insights to other disciplines, including management (Klein et al. 2010; Shockley et al. 2006) and public policy (Lucas 2018). Klein and coauthors contrast Kirznerian and Knightian approaches to public entrepreneurship and propose four research topics for public entrepreneurship: establishment of the rules of the game, creation of new public organizations, “creative management of public resources,” and spillovers from private actions to the public domain (Klein et al. 2010, 5). Of these, all but the third can quite neatly be categorized at level three of this framework. The spillover of private actions to the public domain is particularly intriguing, as it suggests the ability of private actors to supply aspects of governance commonly viewed as strictly “public.” For instance, Fuller and DelliSanti (2017) present a case study of an engineering firm in the Midwestern United States that invested considerable resources in public buildings and schools, in order to attract high-skilled workers to its small headquarters city.

In a different context, I attempt to bring public entrepreneurship theory to the public management debate on “evidence based policy” (Lucas 2018). The evidence based policy paradigm promotes the exten­sive use of quantitative evaluation in the process of creating and imple­menting public policy—allowing “the data” to guide and constrain poli­cymakers. Instead, I claim that evidence based policy is best thought of as part of a broader public entrepreneurial process; in this view, evidence is conceptualized as a resource that political entrepreneurs use to achieve their ends, rather than an objective constraint.

Level 2 Nonmarket Entrepreneurship: Constitutional and Institutional Nonmarket entrepreneurship takes place within the political rules of the game at level four, and it yields substantive changes in law and policy at level three. At still higher level, nonmarket entrepreneurs may seek changes in the fundamental elements of the institutional environ­ment—altering the highest-order rules that determine how lower-order rules like laws and regulations will be created and enforced. The most obvious example of this is “constitutional entrepreneurship,” wherein the entrepreneur is the impetus for the establishment or alteration of consti­tutional rules (Salter 2016; Skarbek 2016; Thomas and Thomas 2014). Salter offers a related perspective of “sovereign entrepreneurship,” which involves the delineation and distribution of political property rights (Salter 2018).

Research at the institutional environment level also posits a role for entrepreneurship in overcoming incentive challenges at the lower levels. Emily Skarbek’s (2016) study of constitutional entrepreneur­ship in the context of humanitarian aid in nineteenth-century urban Chicago is an intriguing example. Skarbek demonstrates how constitu­tional entrepreneurship in the Chicago Relief and Aid Society enabled the organization to establish rules to mitigate the “Samaritan’s Dilemma,” a kind of moral hazard endemic to redistributive efforts. This work highlights the role of constitutional entrepreneurship within private organizations—an issue worthy of further exploration.

A related issue is how actors might overcome barriers to exchange resulting from weak or nonexistent formal institutions. Again, nonmarket entrepreneurship yields a promising solution. Particularly where govern­ments have been unable or unwilling to establish property rights through the public sector, entrepreneurs themselves may create and enforce prop­erty rights privately. Anderson and Hill (2002) discuss the entrepreneurial creation of property rights as a three-step process. Property rights entrepreneurs (1) discover previously unowned but valuable resource attributes, (2) define rights to these attributes, and (3) enforce those rights through contracts. David Skarbek (2009) extends their framework to highlight the importance of prior knowledge and subjective interpreta­tion in the property right opportunity discovery stage. He demonstrates this with the case of Johnny Appleseed, who sold apple trees as a means of strengthening settlers' land rights in the Northwestern territo­ries of North America. Leeson and Boettke (2009) write of institutional entrepreneurship as a “higher tier” form of private sector entrepreneur­ship critical to economic development. Here, institutional entrepreneurs exploit opportunities to introduce “private protection technologies” that enable others to engage in greater levels of investment and exchange that are required for development (Leeson and Boettke 2009).

Lucas and Fuller (2017a) discuss a similar process of “market-making entrepreneurship,” wherein entrepreneurs create market institutions in response to interventionism by the state. We argue that entrepreneurs can effectively create markets for the exchange of previously untraded goods when inter vention results in the attribution of pecuniary value to those goods. We illustrate this possibility with five cases where policy changes incentivized entrepreneurs to facilitate market emergence, including rats, feral pigs, homeless shelters, infected sputum, and human soldier remains.

As evident in this review, level two nonmarket entrepreneurship has gained considerable traction, garnering the interest of a growing number of market process scholars. Indeed, entrepreneurship has been argued to be a key link among Austrian research and closely related fields such as Constitutional Political Economy (Thomas and Thomas 2014). Research on the entrepreneurial element in constitutional/institutional emergence can continue to offer important insights to the economics of property rights—a literature that traditionally views the emergence of property rights as something that “just happens” once efficiency warrants it (Demsetz 1967).

Level 1 Nonmarket Entrepreneurship: Cultural

Cultural entrepreneurship deals with change at the first institutional level: the level of customs, traditions, norms, and religion. Interestingly, although Williamson (2000) famously proposed that informal institutions are the most durable and spontaneous societal rules, a growing body of literature highlights the role of agency in informal institutional change. This view proposes that shifts in beliefs, thought, and values result not solely as spontaneous outcomes but from the interplay of unintended (i.e., emergent) and intended (purposive) forces. The purposive force in informal institutional change is the cultural entrepreneur.

Clear opportunities for cultural entrepreneurship emerge when communities are subject to crises or disasters. This is because the magnitude of disruption brought about can enable or even require the reassessment of previously held beliefs. A notable series of projects in this vein studies how social and cultural entrepreneurs facilitated post-disaster recovery in the wake of Hurricane Katrina (Chamlee-Wright and Storr 2009; Storr et al. 2016). In this work, the entrepreneur is viewed as the “proximate cause” of “social transformation”: social change occurs when individuals exploit the relevant “opportunities” (Storr et al. 2016, 11). In New Orleans, Pastors and other community leaders were pivotal actors whose leadership encouraged and facilitated the return of many individuals in the wake of hurricane-driven mass evacuations, enabling subsequent community rebuilding (Chamlee-Wright 2015). By leveraging a shared pre-crisis culture, these individuals altered the way community members incorporated resilience into their shared identity, compelling them to believe and act upon the idea that community revival was both possible and valuable.

Similarly, “ideological entrepreneurs” induce change in informal insti­tutions by brokering ideological shifts. Scholars tend to model the ideological entrepreneur as an exogenous source of redirection in values, beliefs, and ways of seeing in the broader society; thus, they can break societies from former path dependencies (Storr et al. 2016, 26). This notion fits well with the institutional-hierarchical structure, as Douglass North proposed a similar link among ideological change and entrepreneurial action (Denzau and North 1994). Martin and Storr address these themes in the context of mid-twentieth century Bahamas (Martin and Storr 2006; Storr and Martin 2007).

Cultural entrepreneurship research from the Austrian perspective has enjoyed a relatively broad interdisciplinary scope, including sociology and crisis management. However, it has yet to reach a critical mass or impact in any given scholarly conversation. There is thus rich potential for both theoretical and empirical contributions along these lines. A particularly compelling avenue is the issue of post-crisis entrepreneurship, of which is there is much more to be done and many potential synergies with work in the disciplines of management and entrepreneurship (Shepherd and Williams 2014; Williams and Shepherd 2016a, b).