What’s the risk? It depends. Entrepreneurs’ and employees’ perceptions of domestic city-level institutional risk

Abstract

With a focus on entrepreneurs' decisions related to domestic location choices, this study draws from the international business institutional risk literature to evaluate city-level risk perceptions while accounting for individual-level political views. Specifically, we surveyed entrepreneurs and prospective employees in an effort to evaluate how important 1) safety risk, 2) political risk, and 3) social risk are when considering where to live, work, and start businesses. This process also included a comparison to ease of doing business, a previously studied driver of investment decisions. To identify low (and high) risk domestic investment locations, we had participants rate 25 large U.S. cities on the risk factors. Our findings indicate that entrepreneurs and prospective employees care about the city-level institutional risk factors. However, the focus and perceptions of entrepreneurs and prospective employees are greatly influenced by political views, perceptions do not always mirror objective data, and the two groups weight risk differently. The key insight of our study is that, in order to access and maintain valuable human capital, entrepreneurs should begin considering employees' perceptions related to city-level institutional risk. Importantly, these perceptions are biased by factors such as one's political views. Likewise, to attract business investment, city leaders should consider these risk perceptions.