Institutions and Entrepreneurship

Abstract

The stimulation of entrepreneurship is one of the spearheads of contemporary industrial policy in developed economies, in particular start-ups in the renewable energy sector. Entrepreneurs are the engines of innovation and play a major role in the transition towards a more sustainable energy supply. These policies are so far not efficient in the stimulation of entrepreneurship and major differences occur in the level of self-employment between developed countries. The goal of this study is to have a better understanding of the venture foundation process in the renewable energy sector by applying an institutional economic approach. It is widely accepted that comparative advantages shape corporate strategies of established firms; however the influence on starting ventures is hardly explored. Therefore this study compares the two ideal types of capitalistic economic systems; Germany and the Netherlands as archetypical coordinated market economies and the United States as liberal market economy. It is hypothesized that the rigid labor market, presence of venture capital and an active industry association caused by national institutions are major determinants in the foundation process of entrepreneurs. A combined quantitative and qualitative analysis is applied based on the interviews with 19 entrepreneurs in the solar energy sector in both types of market economies. The results confirmed the role of labor market institutions and industry associations in the venture foundation process. The rigid labor market creates hesitance among entrepreneurs in the Netherlands and Germany to hire employees and entrepreneurs are more often motivated out of necessity, because they have more firm specific skills. It is also more common for entrepreneurs in these countries to join an industry association, but the supportive role of this association is however marginal according to the qualitative insights. Only one of all the interviewed ventures actually did receive an external investment so it cannot be said what the role of financial market institutions is, but entrepreneurs did indicate a lack of venture capital and in particular seed capital in the Netherlands and Germany. Another remarkable finding in this study is the major bureaucracy experienced by entrepreneurs in the US, which is not in line with the comparative political economy literature. Therefore, governmental policies in the Netherlands and Germany trying to foster entrepreneurship the renewable energy sector should create more labor market flexibility and foster seed capital to stimulate the venture foundation process in the Netherlands and Germany. A more comprehensive study (which is now done by my supervisor) could lead to a more general comparative framework for entrepreneurship.