Chapter

Does Less Market Entry Regulation Generate More Entrepreneurs?

Edited by Sendhil Mullainathan and Philipp Schnabl

in International Differences in Entrepreneurship

Published by University of Chicago Press

Published in print June 2010 | ISBN: 9780226473093
Published online February 2013 | e-ISBN: 9780226473109 | DOI: http://dx.doi.org/10.7208/chicago/9780226473109.003.0006
Does Less Market Entry Regulation Generate More Entrepreneurs?

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This chapter discusses the microdynamics of business formalization in Lima, Peru. It investigates a business licensing reform that simplified and removed many of the licensing procedures for businesses in the municipality. Business licensing reform that simplified and removed many of the licensing procedures for businesses in the municipality is investigated. Regulatory steps, such as changes in the time and cost it takes to register a business, can affect the decision of businesses to enter the formal sector. The reform significantly reduced the median licensing time from forty to fifteen days and lowered the average licensing cost by 42 percent. The largest impact of the reforms was in encouraging existing businesses to change their registration status. Regulatory changes can have an effect on the incentives and ability of local bureaucrats to engage in rent extraction. Simplifying government regulations—registration procedures—reduce the opportunities of bureaucrats and government officials to engage in rent extraction, and thus reduce the barriers to entry.

Keywords: economic development; business formalization; business licensing; rent extraction; government regulation; entrepreneurs; market entry regulation

Chapter.  7183 words.  Illustrated.

Subjects: International Economics

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