A GJ Advances article.

Abstract

There are three general categories of start-up rules: (1) rules that govern the formation of business entities (entity formation rules); (2) rules that apply to all start-ups regardless of the type of entity used to conduct business (general operational start-up rules); and (3) rules that apply only when the start-up conducts a particular type of economic activity (activity specific rules). Concerns about the impact of existing start-up rules have generated measurements of the time and money necessary to comply with the rules and attempts to make these measurements comparable across countries. Comparison of the resulting metrics across countries is difficult, however, because of the absence of a microeconomic model of compliance. Should differences in the time and money necessary to comply with the rules be interpreted as a fixed data point produced by the content of the rules or a variable produced by the outcome of the interaction of the rules' content with the prices of the resources used to produce compliance? An additional difficulty in making cross country comparisons exists because the existing metrics only include the time and sums necessary to comply with the entity formation and general operational start-up rules. The activity specific rules are not included. What appear to be minimal constraints might not be minimal if activity specific rules are counted. This paper presents a model of start-up compliance in which the entrepreneur minimizes the cost of compliance by adjusting the personal time that he spends on compliance (which has an opportunity cost) and the amount of time that other persons spend performing compliance tasks for him (which has a monetary cost). The paper also develops benchmarks to measure the constraints within which the entrepreneur has the discretion to adjust inputs based on the start-up rules that were applicable to auto repair firms in Washington state and Hungary in 2003 as well as benchmarks that measure the typical time and money that an entrepreneur spent complying with these rules. The benchmarks show: (1) The time and money necessary to comply with the activity specific rules can substantially exceed the time and money necessary to comply with the entity formation rules and general operational start-up rules; and (2) Except for the case of the Hungarian limited liability company, the opportunity cost of the time spent complying with the start-up rules exceeds the monetary cost of compliance in both Washington and Hungary.

Originally published in Global Jurist Advances.

Recommended Citation

Spall, Hugh and Szerb, Laszlo A. (2006) "Comparing Business Start-up Rules in Different Countries," Global Jurist Advances: Vol. 6 : Iss. 1, Article 1.
Available at: http://www.bepress.com/gj/advances/vol6/iss1/art1