Rightsizing Regulations to Foster Innovation and a Healthy Business Environment: Insights from Elite Executives

This study examines insights from business executives on how TRAILS—that is, taxes, regulations, assessments, interventions, litigation, and subsidies—influence entrepreneurial behavior and firm performance. Using an applied constructivist grounded theory design, we conducted 17 in-depth interviews to identify how top business executives view the effects of regulations on business performance. We adopt the premise that the right level and set of regulations lead to a healthier business environment. We find that right-sized TRAILS catalyze entrepreneurial dynamism, whereas wrong-sized TRAILS impose hidden opportunity costs, stifle innovation, and erode institutional trust. Crucially, the study reveals the vital role of the government as the Umpire—an impartial enforcer and calibrator of TRAILS that safeguards public welfare and sustains the feedback loops essential for market innovation and civic resilience. Building on Bastiat’s broken-window insight and foundational theories, we propose a role for executives in which they serve in an advisory capacity and inform policy design without expanding the state’s remit. We further urge policymakers to support sustainable innovation and societal vitality by fostering systemic conditions, such as knowledge creation, polycentric feedback, discovery processes, and aligned incentives, while also preserving institutional accountability and market discipline.