PurposeSince Baumol (1990), the economic literature has distinguished between two broad categories of entrepreneurship: productive and unproductive. This paper introduces another subcategory: indirectly productive entrepreneurship. Sometimes, profit-seeking entrepreneurs allocate their talents to indirectly productive activities to mitigate the new costs market participants endure as a result of a government regulation. The resources used to mitigate these costs must be diverted from other uses. Design/methodology/approachThis paper uses the example of cell phone storage outside New York City’s high schools to illustrate an indirectly productive entrepreneurial activity that mitigates the inefficiencies or costs created by a regulation. These costs and the resulting entrepreneurship wouldn’t have arisen absent the regulation. FindingsThese profit opportunities do not result from market entrepreneurial errors or successes but emerge from inefficiencies or unintended consequences produced by government regulations. When evaluating such entrepreneurship, the question is whether such regulation is desirable from an efficiency viewpoint because such entrepreneurship, while making such regulation less inefficient or less costly, diverts resources from other lines of production.Originality/valueThis paper identifies a new category of entrepreneurship: indirectly productive entrepreneurship. This paper also shows that government regulation often deters productive entrepreneurship. However, under some circumstances, regulation can indirectly encourage productive entrepreneurship by creating artificial profit opportunities that wouldn’t have existed otherwise.
Journal of Enterpreneurship and Public Policy – Emerald Publishing
Published: Aug 15, 2016
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