Evasive entrepreneurship: Circumventing and exploiting institutional impediments for new profit opportunity in an emerging market

Evasive entrepreneurship (circumvention and exploitation of institutions by entrepreneurs) is a prevalent practice in many developing economies. Extant literature on the topic falls short of providing adequate theories to explain its triggers, mechanisms, and consequences. Leveraging extensive survey data from the World Bank, we used structural equation modeling to examine the relationship between evasive entrepreneurial behavior—tax evasion and bribery—and the relative payoff of such practices. Of the 2599 Nigerian entrepreneurs in our sample, the majority admitted to engaging in evasive entrepreneurship. The data suggest that institutional factors thought to constrain entrepreneurship in emerging markets are counter-intuitively perceived by founders as opportunities to earn large rents and improve firm performance. Our results emphasize the urgent need to eliminate institutional constraints that paradoxically enable the growth of evasive entrepreneurship in emerging economies. Our results also suggest that prevailing local conventions involving evasive behavior may motivate nascent entrepreneurs to imitate bribery and tax evasion, normalizing malfeasance as ‘best practice.’

Learning in Large Worlds

The chapter introduces reinforcement learning in game-theory models. A distinction is made between small-worlds models with Bayesian updating and large-worlds models that implement specific behavioural mechanisms. The actor–critic learning approach is introduced and illustrated with simple examples of learning in a coordination game and in the Hawk–Dove game. Simple versions of a game of investments with joint benefits and a social dominance game are presented, and these games are further developed in Chapter 8. The idea that parameters of the learning process, such as learning rates, can evolve is put forward. For the game examples it is shown that with slow learning over many rounds the outcome can approximate an ESS of a one-shot game, but for higher rates of learning and fewer rounds this need not be the case. The chapter ends with an overview of learning approaches in game theory, including the originally proposed relative-payoff-sum learning rule for games in biology.

The Last will be First, and the First Last: Segregation in Societies with Relative Payoff Concerns

This paper studies coalition formation among individuals who differ in productivity. We consider egalitarian societies in which coalitions split their surplus equally and individualistic societies in which coalitions split their surplus according to productivity. Preferences of coalition members depend on their material payoffs, but are also influenced by relative payoff concerns. The stable partitions in both egalitarian and individualistic societies are segregated, i.e., individuals with adjacent productivities form coalitions. If some individuals are not part of a productive coalition, then these are the least productive ones for egalitarian societies and the most productive ones for individualistic societies.

State Capacity, Reciprocity, and the Social Contract

This paper explores the role of civic culture in expanding fiscal capacity by developing a model based on reciprocal obligations: citizens pay their taxes and the state provides public goods. Civic culture evolves over time according to the relative payoff of civic‐minded and materialist citizens. A strong civic culture manifests itself as high tax revenues sustained by high levels of voluntary tax compliance and provision of public goods. This captures the idea of government as a reciprocal social contract between the state and its citizens. The paper highlights the role of political institutions and common interests in the emergence of civic culture.

Human children but not chimpanzees make irrational decisions driven by social comparison

Human evolutionary success is often argued to be rooted in specialized social skills and motivations that result in more prosocial, rational and cooperative decisions. One manifestation of human ultra-sociality is the tendency to engage in social comparison. While social comparison studies typically focus on cooperative behaviour and emphasize concern for fairness and equality, here we investigate the competitive dimension of social comparison: a preference for getting more than others, expressed in a willingness to maximize relative payoff at the cost of absolute payoff. Chimpanzees and human children (5–6- and 9–10-year-olds) could decide between an option that maximized their absolute payoff (but put their partner at an advantage) and an option that maximized their relative payoff (but decreased their own and their partner's payoff). Results show that, in contrast to chimpanzees and young children, who consistently selected the rational and payoff-maximizing option, older children paid a cost to reduce their partner's payoff to a level below their own. This finding demonstrates that uniquely human social skills and motivations do not necessarily lead to more prosocial, rational and cooperative decision-making.

Managing team coordination incentives: the effect of payoff differentials

Purpose The current paper aims to present a formal model illustrating how payoff imbalances among the members of a team of decision makers (DMs) who must undertake a project condition the final outcome obtained. This result builds on the fact that payoffs imbalances would lead to different performance levels among the employees and managers who compose a team. The analysis is applied to a strategic environment, where a project requiring coordination among the DMs within the team must be developed. Design/methodology/approach The intuition behind the strategic framework on which the results are based is twofold. The authors build on the literature on social comparisons and assume that employees and managers acquire information on the payoffs received by other members of the team while being affected by the resulting comparisons, and they follow the economic literature on firm boundaries determined via incomplete contracts. In this case, employees and managers may underperform if they feel aggrieved by the outcome of the contract giving place to deadweight losses when developing the project. Findings The authors illustrate how a team-based performance reward structure may lead to a coordinated equilibrium even when team managers and employees receive different payoffs and exhibit shading incentives based on the payoff differentials between them. The authors will also illustrate how identical shading intensities by both groups of DMs imply that shading by the managers imposes a lower cost on the profit structure of the firm because it leads to a lower decrease in the cooperation incentives of the other members of the team. Finally, the authors show how differences in shading intensity between both types of DMs trigger a strategic defect mechanism within the team that determines the outcome of the project. Originality/value The novel environment of team cooperation and defection through shading introduced in this paper is designed to deal with the strategic decisions taken by DMs when undertaking a project within a group. In particular, the intensity of shading applied by the DMs will be endogenously determined by the relative payoffs received, which allows to account for different scenarios, where relative payoff differentials among DMs determine the outcome of the project.