Drunk driving policy and urban entrepreneurship: a difference-in-differences approach

Purpose We use a natural experiment resulting from the staggered adoption of local drunk driving policy enforcement to investigate whether driving under the influence regulations, particularly those balancing leniency with severity, are associated with urban entrepreneurship. Design/methodology/approach To examine the influence of drunk driving policy on urban entrepreneurship, our identification strategy relies on the staggered difference-in-differences (DID) model to capture the effect of driving under the influence of alcohol enforcement on entrepreneurial activities. Findings Applying a difference-in-indifferences approach, we find that the balanced approach of leniency and strictness in drunk driving policy is positively associated with urban entrepreneurial activities. Furthermore, the effect is particularly more pronounced in the regions with a larger number of private cars and underperforming financial development, and findings are robust to a series of examinations. Finally, our results suggest that a drunk driving policy tempering justice with mercy boosts the number of venture capital firms and the density of populations. Originality/value This paper extends the existing research on the institutional theory, providing evidence that policy balancing leniency with severity serves as an institutional signal that shapes entrepreneurial decisions. The study offers practical insights that local governments should adopt nuanced enforcement guidelines that allow for either lenient or harsh criminal punishment depending on the circumstances. The findings reveal how balanced policies can ensure social security while cultivating a supportive institutional environment.