Decoding regulatory institutions: The stability-flexibility perceptions model for entrepreneurs and regulators

Entrepreneurial environments are interconnected systems of actors, institutions, and cultural elements that shape the creation and growth of new ventures. A critical gap persists in understanding how regulatory institutions can simultaneously foster stability and flexibility within these environments, limiting the effective implementation of regulatory strategies by entrepreneurs and regulators. We address this by exploring key factors influencing individuals' perceptions of risk and uncertainty in regulations that promote stability and flexibility. We offer the Stability-Flexibility Perceptions Model (SFPM), a structured framework for assessing the efficiency of regulatory institutions from entrepreneurs' and regulators' perspectives. By leveraging the Index of Economic Freedom, our study's key insight is that the SFPM enables a comprehensive evaluation of stability-oriented regulations—such as property rights protection and infrastructure investment—and flexibility-oriented regulations, including labor market adaptability and regulatory simplification. Specifically, it illustrates how property rights and the rule of law, fiscal health and government size, labor and business regulations, and market openness and others are viewed as either fostering or constraining these dynamics. The SFPM enhances the understanding of dynamics within entrepreneurial environments, with its key takeaway being a valuable evaluation tool for analyzing how regulations influence perceptions of stability and flexibility. Future research should enhance the SFPM's applicability across diverse environments.