From Opportunity to Entrapment: Path Dependency of Informal Enterprise

Purpose This paper examines how informal entrepreneurial practices in a developed economy become path dependent, and why attempts at formalisation frequently fail despite entrepreneurial intent. Design/methodology/approach Qualitative, process-oriented design based on twenty-five in-depth interviews with informal entrepreneurs operating in the East Midlands, United Kingdom. Abductive thematic analysis is organised around Sydow et al.'s (2009) three-stage model of path development, moving iteratively between empirical data and path dependence theory. Findings Informality begins as strategic experimentation but stabilises through three self-reinforcing mechanisms: pricing routines, local legitimacy, and administrative capability gaps. These mechanisms interact to narrow subsequent strategic options. Attempts to formalise frequently trigger income shocks, capability gaps, and customer resistance, producing partial transitions, reversion, or long-term lock-in. Originality/value The paper extends path dependence theory beyond its classical focus on technological and institutional stability to conditions of institutional ambiguity, identifying a distinct class of path dependence we term institutionally ambiguous path dependence. It shows that semi-legitimacy itself operates as a self-reinforcing mechanism, generating a relational form of lock-in absent from existing accounts, and offers a process-based explanation of why formalisation often fails despite entrepreneurial intent.