A Natural Experiment on Institutionalized Choice and Individual Entrepreneurial Behavior

Institutional change generates new opportunities, yet theory remains unclear on how durable, stable institutions, which are thought to constrain individuals, may also foster variation in individual behavior. We argue that institutions might enable variation in behavior by allowing, rather than constraining, individual choice, something we refer to as “institutionalized choice.” This paper explores a natural experiment at a University, in which the institutional change eliminated a constraint, the academic year system, resulting in greater institutionalized choice among students. Using a difference-in-differences approach, we find that institutionalized choice fostered greater variation in students' choices in selecting courses and in turn, generated greater entrepreneurial behavior. Furthermore, we find that the effect of institutionalized choice on entrepreneurship is stronger for students from less wealthy families, pointing to an important mechanism that may take a step towards addressing inequality and economic mobility