Legal institutions, perceptions and entrepreneurship: an empirical investigation

Abstract

This study assesses how perceptions about the quality of legal institutions affect entrepreneurial activity across US states. We employ survey data from the US Chamber of Commerce’s Institute for Legal Reform regarding both the overall perceived institutional quality within a state and a multitude of subcategories. With a panel data set covering 2002–08, we find that along with overall legal quality, entrepreneurial activity across states is positively correlated with better perceptions about punitive damages, summary judgment, rules of discovery and admission of scientific and technical evidence at trial. Interestingly, interacting these variables with economic freedom typically generates non-results, though this is not the case when considering only opportunity entrepreneurship. Implications are discussed.