Trust, Institutions and Entrepreneurial Behaviour

Abstract

Our research project investigates entrepreneurial behaviour in different Western and Eastern European countries. The central hypothesis is that trust has a decisive impact on entrepreneurship. Trust determines ways into and forms of entrepreneurship as well as entrepreneurial behaviour. In this context, low levels of trust constrain market entry, enterprise growth and competition whilst encouraging unproductive forms of entrepreneurship. Empirical evidence shows that entrepreneurship under transition conditions takes a variety of different forms and enterprises use various strategies that partly reflect the external environment for private enterprise in these countries (Smallbone and Welter, 2001a). The types of entrepreneurship identified include the so-called ‘nomenclatura’ businesses, firms operating mainly within the formal economy, self-employment, part-time businesses and enterprises operating almost or entirely outside the formal sector. Although with the exception of the first mentioned all other types exist under mature market conditions, the specific context in which they have developed (particularly during the early stages of transformation) has implications for their specific characteristics and pattern of behaviour. In this context, the paper, which should be considered a work in progress, discusses the theoretical concept we propose to use for our research project. Part 2 introduces the concept of formal and informal institutions developed by Douglass North whilst part 3 presents its implications for analysing entrepreneurship and entrepreneurial strategies. Part 4 discusses interactions between trust and formal institutions. Part 5 points out strengths and weaknesses of the institutional concept and indicates topics for further discussion.

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