Entrepreneurship and Regulatory Voids: The Case of Ridesharing

Abstract

Formal institutions, for example, regulations, are considered crucial determinants of entrepreneurship, but what enables regulatory change when there is a regulatory void, meaning entrepreneurship clashes with existing regulations? Drawing on public choice theory, we hypothesize that regulatory freedom facilitates the introduction of legislation to fill such voids. We test this hypothesis using unique data documenting the time for ridesharing to become legalized at the state level across the United States following its local (and often illegal) rollout. Results suggest states with greater regulatory freedom passed ridesharing legislation quicker, highlighting an underappreciated way that extant regulatory freedom facilitates the accommodation of entrepreneurship.