Game theoretic analysis of institution-entrepreneurship links

Abstract This paper aims to contribute to the ongoing discussion surrounding the influence of institutions on the distribution of entrepreneurial talents across productive, unproductive, and destructive activities. Existing literature suggests that societies can exhibit purely destructive, unproductive, or productive entrepreneurship characteristics. Employing a game theoretic framework that integrates insights from entrepreneurship and institutional studies, we explore the dynamics of entrepreneurial talent allocation. Introducing an institutional parameter into the Prisoners' Dilemma Game, we clarify the mechanism by which a society transitions between different forms of entrepreneurship, contingent on the value of the parameter (ranging from −1 to +1). Our findings underline a continuous transition, revealing the prevalence of either a predominantly rent-seeking society or one characterized by productive entrepreneurship, with variations based on the proximity of the institutional parameter to perfection or imperfection.