Two sides to the evasion. The Pirate Bay and the interdependencies of evasive entrepreneurship

Date15 August 2016
DOIhttps://doi.org/10.1108/JEPP-01-2016-0001
Pages176-200
Publication Date15 August 2016
AuthorNiklas Elert,Magnus Henrekson,Joakim Wernberg
SubjectStrategy,Entrepreneurship,Business climate/policy
Two sides to the evasion
The Pirate Bay and the interdependencies of
evasive entrepreneurship
Niklas Elert and Magnus Henrekson
Research Institute of Industrial Economics (IFN), Stockholm, Sweden, and
Joakim Wernberg
Centre for Innovation,
Research and Competence in the Learning Economy (CIRCLE),
Lunds Universitet, Lund, Sweden
Abstract
Purpose Evasive entrepreneurs innovate by circumventing or disrupting existing formal
institutional frameworks. Since such evasions rarely go unnoticed, they usually lead to responses from
lawmakers and regulators. The paper aims to discuss this issue.
Design/methodology/approach The authors introduce a conceptual model to illustrate and map
the interdependencey between evasive entrepreneurship and the regulatory response it provokes.
The authors apply this framework to the case of the file sharing platform The Pirate Bay, a venture
with a number of clearly innovative and evasive features.
Findings The platform was a radical, widely applied innovation that transformed the internet
landscape, yet its founders became convicted criminals because of it.
Originality/value Applying the evasive entrepreneurship framework to this case improves the
understanding of the relationship between policymaking and entrepreneurship in the digital age,
and is a first step toward exploring best responses for regulators facing evasive entrepreneurship.
Keywords Self-employment, Entrepreneurship, Innovation, Institutions, Regulation
Paper type Case study
1. Introduction
William Baum ols (1990) paper Entrepreneurship: Productive, Unproductive, and
Destructivedid for entrepreneurship economics what Douglass North (1990) did for
mainstream research on economic growth it put a spotlight on institutions. Baumol
(1990) relied on basic microeconomic assumptions to hypothesize th at core entrepreneurial
talents are used to maximize individual utility rather than social welfare. Thus,
entrepreneurship is not welfare-enhancing by default. Rather, the manner in which
institutions structure economic payoffs influences the nature of entrepreneurial activities.
We augment this analysis by studying the interdependency between formal institutions
shaped by policymaking and entrepreneurial activities aimed at evading these institutions.
The aim of this paper is to provide a better understanding of such evasive entrepreneurship
and the regulatory responses that it provokes, and to illustrate how these interdependencies
shape the path and payoffs associated with evasive entrepreneurship.
Evasive entrepreneurship is aimed at circumventing formal institutions in order to
gain an advantage, facilitate change or exploit an arbitrage opportunity (Elert and
Henrekson, 2016)[1]. For instance, to avoid transportation market regulations, the
Journal of Entrepreneurship and
Public Policy
Vol. 5 No. 2, 2016
pp. 176-200
©Emerald Group Publishing Limited
2045-2101
DOI 10.1108/JEPP-01-2016-0001
Received 15 January 2016
Revised 20 April 2016
Accepted 20 April 2016
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
The authors are grateful for useful comments and suggestions on an earlier version of this paper
from Steven Davis, Maria Minniti and Jerker Moodysson. Elert and Henrekson gratefully
acknowledge financial support from the Jan Wallander and Tom Hedelius Foundation.
176
JEPP
5,2
ride-sharing firm Uber has consistently argued that it is not a transportation company but
rather a technology company. Similarly, because rentals through the accommodations
website Airbnb often occur between individuals, the users typically avoid many of the
regulations that firms in the hotel industry face, even though they compete with these
firms. Evasive entrepreneurship always occurs in a legal grey area, but it is also an
underestimated and poorly understood source of innovation in the modern economy.
We argue that evasive entrepreneurship can be perceived as a vehicle of regulatory
and legislative change. This type of entrepreneurship is a means to test and provoke the
existinginstitutional frameworks, andit also indirectlyresults in adaptationswithin those
frameworks. Productive, unproductive and destructive forms of evasive entrepreneurship
demonstrate that there is a gap or inconsistency in the regulatory structure being evaded.
By regulators, we refer to the decision-makers who shape, implement and monitor
the workings of formal institutions. Their activities usually occur in the legislative,
judicial or bureaucratic branches of the (local, regional, national or supranational)
governmental system. Regulators can respond to evasive entrepreneurship by trying to
adapt their institutions and either accommodate or eliminate the evasion. However, the
market and institutional outcome of an evasion is highly interdependent, and neither
entrepreneur nor regulator can fully control it. Accordingly, an evasion may end up as
either a celebrated innovation or a criminal offense.
We formulate a conceptual model based on basic game theory to study the
interdependencey of evasive entrepreneurship and regulatory responses. We then
apply this framework to a recent and well-known case of evasion, the file sharing
platform The Pirate Bay (TPB). TPB is arguably one of the most influential and well-
known digital Swedish innovations in recent times, and for a while, a considerable
fraction of all internet traffic passed through the sites tracker (Snickars, 2010).
Simultaneously, TPBs venture heavily relied on exploiting a legal grey area, and
regulators eventually decided that its activities were unlawful. Ultimately, its founders
were jailed and received million-dollar fines. This case provides an important example
of the interplay between evasive entrepreneurs and regulators. A better understanding
of this case and its interdependent outcome may provide insights regarding how future
evasive entrepreneurs can challenge and affect regulatory frameworks, and ma y
highlight how regulators should or should not respond to such signals.
This paper is organized as follows. In Section 2, we present a formal definition of
evasive entrepreneurship and introduce our conceptual model to illustrate the
interdependencies of evasion. In Section 3, we present the TPB case, analyzing both the
evasive entrepreneurial activity involved and the institutional responses to this
activity. To place the themes discussed in this paper in a broader context, the final
section begins with a comparison of TPB with other cases of evasive entrepreneurship.
We then discuss our results and their implications for policymakers and regulators
grappling with the issue of how to address evasive entrepreneurship in manners that
enhance social welfare.
2. Concept ual framework
A model to conceptualize the interplay between evasive entrepreneurship and
regulatory response must first be developed. Profit-driven entrepreneurship can alter
the institutional setup (de jure and/or de facto) in manners that change the external
social reward structure for economic behavior, which, according to Baumol (1990),
affects the allocation of entrepreneurial talent. Entrepreneurs can do this in two
manners, namely, through political entrepreneurship (e.g., lobbying) that is directly
177
Two sides to
the evasion

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