An Effectual Model of Collective Action for Addressing Sustainability Challenges

Abstract: Market failure has been cited as a major cause of environmental degradation due to business activity. Yet entrepreneurs often play an active role in tackling environmental issues and developing sustainable solutions for them. Whereas a rising literature on sustainable entrepreneurship seeks to investigate how they do this, rigorous microfoundations for such investigations do not yet exist. With a view to developing such microfoundations, we reanalyzed Nobel laureate Elinor Ostrom’s historical case study of governance structures for managing water basins in the Los Angeles area. Our analysis allowed us to bring together Ostrom’s institutional analysis and development framework and effectuation to show how effectual entrepreneurs transform market failures into sustainable solutions by self selecting stakeholders. The resulting integrated model of collective action serves both as a practical guide for entrepreneurs seeking to tackle sustainability issues and as a theoretical framework for researchers to develop rigorous microfoundations for future empirical work.