Grandy & Hiatt (2020) State Agency Discretion and Entrepreneurship in Regulated Markets

Jake Grandy – University of Arkansas, Walton College of Business
Shon Hiatt – University of South California, Marshall School of Business

Nareuporn “Bell” Piyasinchai – University of Cambridge, Judge Business School
Chen Lin – Nanjing University of Science and Technology

Article link:

1. Ideas and Research Process

Interviewers: Congratulations on publishing your dissertation work on “State Agency Discretion and Entrepreneurship in Regulated Markets” in ASQ. We greatly enjoyed reading your work.In particular, we find that the principal-agent tension between elected officials and agency bureaucrats that would benefit new entrants and level the playing field in the absence of formal policy changes very interesting. How did you first conceive of this interesting idea? Was the key research question emerged from and driven by the phenomenon, the gap in existing literature, data, or anything else? Could you let us in on the genesis and research process behind this paper?

Jake:  I started my doctoral studies in the School of Public Policy at USC before switching to the Marshall School of Business. There I was introduced to the notion of public policy as a “process” in which many different actors are involved in the development and implementation of policies. When I joined the business school I was naturally interested in the intersection of business and government, but a lot of the non-market strategy literature overlooks the role of these different actors in affecting business outcomes.

Shon: Jake’s public policy education and public administration career background contributed in identifying the right literatures to address this phenomenon.

2. Review Process

Interviewers: How did the paper evolve from the first draft to the published version? Had anything interesting, significant, and important, been emerged over the review process? What was some of the push back (if any) that you received? What was the most challenging part of it?

Jake: The first draft of the paper just validated the idea that state agency discretion differentially affected outcomes for new versus established firms. From there I started thinking about factors that might moderate the effect.

Our three reviewers and editor were extremely helpful in polishing the paper. The qualitative evidence we provide (quotes from regulatory agency officials) was at the suggestion of one of the reviewers, and I think really helped solidify that the mechanism is what we thought it was.

3. Key Assumption and Implications, and the External Validity of the Key Findings

Interviewers: This study focuses on a very unique and specific context: hydroelectric power in the United States. To what extent do you think the key findings and implications can be generalized to different industries and countries? For instance, many other countries do not have states with considerable authority like the US, and the assumption regarding the more effective policy implementation by more-knowledgeable regulators might not hold in less developed countries.

Jake: Regulated markets are a huge segment of the US economy and I think many of the lessons from the hydroelectric power sector are applicable to a wide range of industries. In countries where regulatory agencies are underdeveloped or are more highly centralized, and the states or regions have less political economy, our insights may not be so applicable. However, I think insights may be applicable to supranational organizations of nations like the European Union.

Shon: I concur with Jake on the generalizability of this paper to bureaucratic regimes like the European Union. In a working paper that I have with Eun-Hee Kim and Maggie Zhou on emergence of the carbon trading market in the European Union, we find that different elements of countries’ agencies play a very large role in how firms react with regards to investments and carbon reduction strategies to uncertainty regarding future carbon prices. Additionally, Jake and I are also exploring renewable energy innovation in the UK and European Union to see whether government agency discretion affects innovation.

Interviewers: Furthermore, what do you think the extent to which the principal-agent tension (i.e., regulatory agency’s own interests are always to maximize societal welfare outcome) holds in practice in this setting and across different contexts?  

Jake: Our insights about regulatory agencies’ interest in maximizing societal welfare are drawn from the public administration literature which has identified this sort of “public service motivation” across many regulatory contexts. Many of these studies are ethnographic in nature; hence, the findings are drawn directly from observations of practice.

4. Connection Between Literatures

Interviewers: We are very impressed about a nice mix across various fields of literatures you draw on from management, political science, public administration to law, economics, and public policy to publish your study in a sociology-focused journal like ASQ. What are your takes on integrating cross-field literatures?

Jake: I think it’s normal for non-market strategy research to engage with political literatures, much like management literature engages with economics, sociology, and psychology literatures. However, I think there is a big opportunity for deeper engagement. The public policy and public administration literatures are massive, and there is a huge opportunity to take insights from these literatures and integrate them with insights from management to develop novel theories.

Shon: In addition to Jake’s points, although non-market strategy research has benefited from political economy insights, when studying government agencies, the public administration literature is often overlooked, yet it provides unique mechanisms and relevant insights. One contribution of our study is that it introduces public administration research into the management discourse at the intersection of business and government to better understand government agency decision-making. However, we emphasize that bringing in overlooked literatures is risky in the review process. For a paper such as this to succeed, it requires an Editor who can manage different reviewers’ viewpoints, recognize the innovative contribution, and can provide a path forward. We were fortunate to have such an editor with Professor Dev Jennings. On a nostalgic note, the study also returns Administrative Science Quarterly to its business and public administration roots, as a multidisciplinary journal founded and published in McGraw Hall.

5. Reflection and Future Research

Interviewers: This is a paper based on Jake’s dissertation that won the Best Dissertation Awards from both the Organizations and Natural Environment Division of the Academy of Management and the Industry Studies Association in 2018. We would love to know how has this article shaped your research interests and career path? What other work followed this ASQ piece?

Jake: This article is part of a larger research agenda to add nuance to the non-market strategy literature by looking at a greater diversity of actors that influence the development and implementation of public policies. Having this article accepted at ASQ has certainly validated this as a fruitful area for future research.

We are currently working on another paper from my dissertation that looks how state agencies affect the ability of social movement activists to influence firms. I am also developing a conceptual piece looking at the non-market strategies of startups.

Shon: I am also building on this research with a study that examines the mechanisms by which government agencies award of defense contracts to businesses and how businesses exploit those mechanisms.

6. Advice to PhDs

Interviewers: Some PhD students may be currently frustrated with some of the challenges that arise in research or PhD life. What is the most important piece of advice would you give to PhD students?

Jake: Approach your PhD education more like an entrepreneur than a student. Most university-level education is highly structured with rules, constant milestones and deadlines. PhD education generally lacks all those things. The irony is that the kind of students that are competitive candidates for PhD programs have figured out how to do exceptionally well in highly structured environments. So, a big part of succeeding as a doctoral student is making the pivot from the student-mindset of consuming knowledge to a founder-CEO mindset where you’re in charge of your own start-up that “sells” unique knowledge.

Shon: I’ll repeat the advice that my doctoral adviser Pamela Tolbert gave to me: be a ‘data rat’: Find and collect unique and rich datasets that can be used for multiple papers. There are many industries—especially those that are composed of privately owned firms such as new ventures—that are overlooked and not well examined.

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