An institutional perspective of public policy and network effects in the renewable energy industry: enablers or disablers of entrepreneurial behaviour and innovation?

This study extends theory on the effects of public policies stimulating technology demand and of industry network ties on firm-level entrepreneurial behaviour. We take an institutional perspective to develop a theoretical model examining the mechanisms through which public policies, regulatory uncertainty, and industry network ties affect firm-level entrepreneurial decision-making processes and the ability to introduce highly innovative products and to sustain superior performance. We focus on firm-level effects, which enables the study of the tension between institutional pressures of homogeneity and competitive pressures of heterogeneity for entrepreneurial decision-making processes in environments characterized by policy-induced market demands. To test our hypotheses, we draw on data from a large-scale survey among German renewable energy firms. Our results show that public policies can constrain firm innovativeness and risk-taking behaviour because they steer firms towards a more conservative attitude and discourage the pursuit of high-risk innovation projects. However, firms can counteract these influences and enhance their innovativeness by maintaining close network ties with research associations as we find that innovativeness and a highly innovative product portfolio are key success factors. In summary, these findings provide important implications for the study of public policy effects, industry network ties and entrepreneurial behaviour.