article · Acta Oeconomica
Institutions strongly shape how entrepreneurial talent is allocated across productive, unproductive, and destructive pursuits. Using a game theoretic approach based on the Prisoners' Dilemma, the research models how institutional quality influences these dynamics. An institutional parameter ranging from minus one to plus one is introduced to explore how societies transition between different entrepreneurship profiles. Rather than shifting abruptly between distinct states, the model identifies a continuous transition between predominantly rent-seeking societies and productive entrepreneurial economies. The outcome depends directly on the relative strength or weakness of the institutional environment. When institutions approach perfection, productive entrepreneurship becomes dominant, whereas institutional failure promotes rent-seeking behaviour. This analytical framework clarifies the exact mechanisms governing how formal rules and structures channel entrepreneurial talent toward either wealth creation or value extraction.
Entrepreneurs can either build economic value or extract wealth through rent-seeking, depending on the rules of their environment. By demonstrating how institutional conditions systematically steer talent toward productive business creation rather than value-destroying activities, this theoretical model helps explain why some economies flourish while others stagnate, providing clear structural insights for institutional reform and economic development.
This theoretical, early-stage research provides an analytical model rather than a direct commercial product. Economic policymakers, institutional reformers, and development agencies could potentially use the framework to evaluate how regulatory changes impact business incentives. However, because the study is purely mathematical and conceptual, it remains far from direct operational application, and the abstract does not indicate a specific commercialisation pathway.
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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.
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DOI: 10.1556/032.2025.00003
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