ABSTRACT
This chapter introduces three waves of thought in institutional theory regarding how to explain informal entrepreneurship. In a first wave of institutional theory, informal entrepreneurship was explained as resulting from formal institutional failures and imperfections, including formal institutional resource misallocations and inefficiencies, voids, weaknesses and instability. In a second wave of institutional theory, however, it has been recognised that focusing upon solely formal institutional failings and imperfections ignores the role played by informal institutions. In this wave, therefore, greater attention has been paid to these informal institutions, and informal entrepreneurship has been increasingly viewed as arising 'because of the incongruence between what is defined as legitimate by formal and informal institutions'. Other formal institutional failings and imperfections that are seen to result in the prevalence of informal entrepreneurship relate to the existence of formal institutional powerlessness.
