Following up on my post yesterday a quote from Nobel Prize-winning economist Douglass North caught my eye:
In his 1993 Nobel Prize lecture, economist Douglass North said, “If the institutional framework rewards piracy, then piratical organizations will come into existence; and if the institutional framework rewards productive activities then organizations — firms — will come into existence to engage in productive activities.”
Leaving the context in which the quote is used (more in the argument over whether the GSEs were responsible for the housing bubble and its collapse) aside, I think that crowding is certainly one explanation for why the rate of formation of new companies has declined.
It just became too profitable to be a pirate. Productive activities are a lot more work, not to mention riskier.
