We introduce the proto-entrepreneur as an economic agent who must first — i.e., before acting entrepreneurially — coordinate non-price information with others in order to reveal exploitable opportunities. Entrepreneurship, therefore, involves dual economic discovery problems, each of which may hold different efficient institutional solutions. Applying transaction cost economics logic to this problem, we reveal what we call an ‘entrepreneurial fundamental transformation’: while the entrepreneurial process begins with proto-entrepreneurs undertaking non-price coordination in polycentric collective action governance structures called innovation commons (Allen & Potts, 2016), it ends with integration in the hierarchical start-up firm. This governance shift, we argue, is the result of falling structural uncertainty — as unknown complementary collaborators become known — and rising idiosyncratic quasi-rents, both of which bring contracting hazards and move the economising structure towards the nascent firm.

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This conference paper can be downloaded on SSRN here.