BYU Law recently hosted 30 legal and business scholars with varied specialties from schools across the United States to examine the role of law in facilitating or impeding entrepreneurial action. The Law and Entrepreneurial Action Conference was organized and hosted by Professors Gordon Smith and Christine Hurt, and the participants in the conference will contribute to the Handbook of Law and Entrepreneurship in the United States to be published next year by the Cambridge University Press.
Law plays an important role in determining the level of entrepreneurial action in a society. Legal rules seek to define property rights, facilitate private ordering, and impose liability for legal wrongs, thereby attempting to establish conditions under which individuals are emboldened to act. Legal rules also channel the development of technology, regulate the flow of information, determine the parameters of competition, specify the requirements for financings, and provide forms within which people order their affairs. Depending on how they are structured and implemented, however, legal rules can also discourage individuals from acting. Determining which legal rules and institutions are appropriate is crucial.
Entrepreneurial action is the central idea motivating the study of law and entrepreneurship, and promoting entrepreneurial action is a fundamental goal of the U.S. legal system. Although definitions of entrepreneurial action are legion, the core function of entrepreneurs is to challenge incumbency. Incumbency refers to established ideas, products, methods, organizations, or technologies. Incumbency in business settings – which, at the extreme, constitutes monopoly – leads to well-known pathologies: low rates of production, low levels of innovation, and inefficiency. Entrepreneurs challenge incumbents by commercializing new products, offering new services, creating new ways of organizing, or opening new geographic areas. The challenge to incumbency occurs not only when innovative products, services, or organizations actually enter markets, but also when incumbents operate under threat that future innovations in their market will make them obsolete.
Foremost among the purported benefits of challenging incumbency, at least in the academic discourse, is the claim that entrepreneurial action advances important economic objectives, such as reducing poverty, creating jobs, fostering innovation, and spurring growth. Participants at the conference acknowledged and embraced these potential economic benefits. Entrepreneurial action became a fundamental goal of the U.S. legal system not only because of the economic effects of entrepreneurial action, but also because entrepreneurial action advances deeply held values of liberty and democracy. For example, the ability to act creatively in pursuing one’s profession encourages individual self-actualization. The search for truth is not merely an intellectual exercise, but a practical one, and entrepreneurial action expands the possibility space for future ideas. Entrepreneurial action also encourages widespread participation in social decision-making by allowing potential decision-makers to invest and participate in the system. Finally, entrepreneurial action promotes the balance between stability and change by allowing for the monitoring of corporations, government, and other institutions.
Participants in the conference explored myriad issues arising in current policy debates: the incentive effect of legal rules on startup activity; the role of private ordering in facilitating or impeding entrepreneurial action; the influence of legal rules and practices on the creation of entrepreneurial opportunities; the role of law in promoting or foreclosing market entry; and the effect of entrepreneurial action on legal doctrine. The conference was supported by grants from the Ewing Marion Kauffman Foundation, the Rollins Center for Entrepreneurship & Technology, and the BYU Law School