Who Benefits from Entrepreneurship Opportunities? Check the Norms!

Many nations want more entrepreneurship to grow the economy. Many individuals want public support of their entrepreneurship efforts, or at least removal of barriers. When policies to make entry into entrepreneurship easier are introduced, a common logic is that they should benefit the economically weaker people because the privileged have the necessary resources to enter entrepreneurship. This logic has a problem, though: researchers have found that it is sometimes right and sometimes wrong.

Understanding the reasons for the inconsistency was the motivation behind research by Grady W. Raines, Peter S. Polhill, Shon R. Hiatt, and Ryan S. Coles published in Administrative Science Quarterly. Their underlying idea was that most support for entrepreneurship is about reducing financial barriers or friction in the form of difficult business registration requirements. Barriers against entrepreneurship don’t just come in the form of time and money, however, so these types of changes may not be enough. Other barriers exist in the mind: who in society think of themselves as potential entrepreneurs and are thought of by others as potential entrepreneurs? And another barrier resides in social relations and norms: who does a society believe should be entrepreneurs?

Why do these distinctions matter? Well, let’s imagine a society in which men are thought of as more natural entrepreneurs and where norms see men as those who should lead anything, including businesses. We don’t need to imagine it, of course, because many societies are patriarchal like that. In this research, the authors focused on reforms in Mexico that were intended to make entrepreneurship easier by reducing required procedures and office visits and thereby speeding up the business registration process by a lot – from a month to a day and a half.

So, what happened?  Mexico got more entrepreneurs, as we would expect. Male entrepreneurs. For women, there was no increase in the number of entrepreneurs following this reform, suggesting that the norms disfavored them. And remarkably, this lack of change was the best news from the perspective of women. Now for the really bad news: Fewer women had paid employment following this reform. Why? Because more of them did unpaid labor in the entrepreneurial enterprises of their male relatives. So, in this patriarchal society at least, easier entrepreneurship meant more male entrepreneurs and more unpaid women workers.

Is this a reason to be wary of entrepreneurship or of policies supporting entrepreneurship? Probably not. Is it one more reason to think that norms of inequality, such as patriarchy, find many ways to hurt society? Yes. And it is not clear that we have a good solution for this.

Raines, G.W., P.S. Polhill, S.R. Hiatt, R.S. Coles. 2024. Cultural Norms and the Gendered Impact of Entrepreneurship Policy in Mexico. Administrative Science Quarterly forthcoming.

Why Quit Your Job? Resources in Black and White

Employers have always been interested in why workers quit their jobs. It is often, and rightly, seen as a waste because those who quit to join another company are clearly seen as more valuable there, or see the other company as more valuable for them, suggesting that they were not used well enough or appreciated highly enough in their current job. High quit rates are problematic for companies.

They are also problematic for society because quit rates display racial differences. All racial groups in the US society have slightly different quit rates, but a glaring concern is that black workers quit so often even though they face discrimination in getting a new job. Why?

Recent research by Adina D. Sterling published in Administrative Science Quarterly gives a clear answer: it is about resources. In resource access, there is, on average, a big black and white difference. Black workers face greater problems with public transportation and health, both of which can prevent workers from staying in their jobs. White workers have greater resources for starting a new venture or returning to education, and this allows many of them to leave their jobs. So, the same behavior – quitting the job – has very different meaning, though the root in both cases is resources: too few resources for the black worker to stay, too many resources for the white worker to want to stay.

If the answer is all about resources, where is the discrimination? We can find it in two places. The first is the economic and social history behind these resource differences. If we look at the family income distribution by race, we see that black workers’ families are a majority in the bottom 25th percentile of family income even though they are a minority in US society. Sure, they are also found in the top 25th percentile, but given the lasting effects of slavery and legalized segregation and discrimination, there they are scarce.

The second place is in black workers’ greater difficulty in gaining jobs, and especially gaining jobs that are close enough to their homes to reduce their dependence on public transportation for getting to those jobs. Difficulty in gaining a nearby job translates to lack of resources and inability to keep the job, which too often places black workers on the job market again, facing the same difficulty. Sterling’s research highlights this vicious circle: a crucial step in keeping employers and policymakers focused on providing what can matter most for a worker trying to stay on the job.

Sterling, Adina D. 2024. “This Is Why I Leave”: Race and Voluntary Departure. Administrative Science Quarterly, forthcoming.

How to Detect Fraud in Cryptocurrency Markets? Learning From Ambiguity and Cues

How do you like cryptocurrencies? How do you like fraud? As we know from the press, especially news reports on
convictions such as that of SamBankman-Fried, the two questions are closely related. The unregulated nature of cryptocurrencies means that actions that are blatantly illegal in regular securities markets have a weaker legal proscription in cryptocurrency markets, and some people take advantage of it. That creates a problem for those who want to keep such markets healthy and make use of the currencies.

How they deal with this problem was the question studied by Bryan Spencer and Claus Rerup in research published in Administrative ScienceQuarterly. They examined a crypto-investment community that was hit by a series of fraudulent promotions by a group of actors who coordinated with each other to execute classic “pump-and-dump” schemes of minor cryptocurrencies. The problem, of course, was that the world of cryptocurrency movements and the world of online news are both ambiguous, so detecting coordinated fraud is difficult.

A major reason the researchers could detect that fraud was happening and that the investors were – after a while – becoming aware of this was that the researchers had access to the database containing public and group chats about the cryptocurrencies, which included the conversations among the fraudsters that were kept hidden from the other crypto-investors.

So, what did the investors do? Over time, they learnt. But they followed a path of nontraditional learning based on learning by making inferences from interpreting cues. They would question the intent behind the appearance of innocent-looking information (such as false analyst reports) supporting a currency. They would look for similarity between new information releases and earlier fraud cases. They would infer the intent behind the release of information even when they did not know who was behind the information release. And once they had made enough interpretation and inference, they would have stories ready about the true nature of the unfolding events and would be able to act in response. They acted by more systematically monitoring releases of information and by routinizing public responses to information releases that looked suspicious, so that other investors would become aware of the price pumping and could avoid entering.

In all, this article is a very interesting report on how a community can act to protect itself in the face of ambiguous information and repeated fraud attempts. But also, it is a reminder of why markets are regulated and why financial markets are regulated especially strictly. After all, the lengthy penalty of Sam Bankman-Fried was based on wrongdoing not in the cryptocurrency operations, but in regular and regulated financial markets.

Spencer, Bryan and Claus Rerup. 2024. The Dynamics of Inferential Interpretation in Experiential Learning: Deciphering Hidden Goals from Ambiguous Experience. Administrative Science Quarterly, forthcoming.