Scandinavian Working Papers in Economics
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Research Institute of Industrial Economics (IFN) Working Paper Series

No 1144:
Status Quo Institutions and the Benefits of Institutional Deviations

Niklas Elert () and Magnus Henrekson ()

Abstract: We nuance the widely held view that well-functioning institutions are the ultimate prerequisite for innovation and entrepreneurship. This is done by putting the spotlight on the role that formal and informal institutions have in serving the economic status quo, conserving old habits and incumbent economic interests. Therefore, existing institutions often act as impediments to entrepreneurship and innovation. We argue that a common yet underappreciated source of institutional change arises when individuals deviate from the behavior stipulated by existing institutions. All types of deviations are certainly not beneficial, but when they take the form of innovations introduced by entrepreneurs, they can be a powerful source of economic and institutional change. An institutional setup should strike a balance between the need for stability that protects people’s expectations and flexibility and adaptability to innovations and the ensuing entrepreneurship.

Keywords: Regulation; Norms; Innovation; Entrepreneurship; (follow links to similar papers)

JEL-Codes: L50; M13; O31; (follow links to similar papers)

16 pages, December 8, 2016, Revised March 15, 2017

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This paper is published as:
Elert, Niklas and Magnus Henrekson, (2017), 'Status Quo Institutions and the Benefits of Institutional Deviations', International Review of Entrepreneurship, Vol. 15, March, No. 1, pages 1-14

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