Business and Management INK

Disruptive Technologies and Local Regulations: Policy Leaning in Venue Shifting

November 22, 2023 641

Lori Qingyuan Yue and Jue Wang reflect on their article, “Policy Learning in Nascent Industries’ Venue Shifting: A Study of the U.S. Small Unmanned Aircraft Systems (UAS) Industry,” which was recently published in Business & Society.

Disruptive technologies pose daunting questions for regulators. Hydraulic fracturing, drones, ridesharing, and facial recognition are examples of disruptive technologies that have spawned new, fast-growing industries and created unprecedented challenges for the environment, human safety, privacy, etc. The fear that without proper constraints technologies may run amok has propelled many local governments to restrict such technologies. How are technology firms to respond to these local restrictions?

Our research finds that, instead of fighting local restrictions one by one, technology firms adopt the venue-shifting strategy through lobbying a state government to nullify local restrictions. Technology firms can leverage the “regulatory void” in many nascent industries to do so because the government entities that have regulatory authority over nascent industries are often unclear and even contested at the emerging industry stage. While individual technology firms may not have deep pockets, the industry can act collectively through their trade associations to lobby a political venue that is more favorable toward them to nullify unfavorable regulations enacted by another political venue.

Then, how do technology firms figure out a targeted political venue would be favorable toward their policy proposals? While policy learning in venue shifting has traditionally been viewed as a long-term process based on trial-and-error, we find it unsuitable to the nascent industries as such a view suggests that nascent industry groups would be ineffective in engaging into venue shifting due to their lack of interaction experience with venues. Yet the fact that many nascent technology industries have successfully adopted the venue-shifting strategy to remove restrictions suggests that nascent industry groups can learn from other sources.

Professional headshots of Lori Qingyuan Yue and Jue Wang.
Lori Qingyuan Yue, left, and Jue Wang

Through investigating the US UAS industry from 2013 to 2019, we find that UAS trade associations resolve the uncertainty regarding whether a targeted state government would support their policy proposal through examining (1) whether the state government is ideologically distant from the local governments that have enacted the restrictive regulations, (2) whether the state government has recently supported other nascent industry groups’ similar policy proposals, and (3) whether their industry peers have successfully promoted the same policy proposal in other states. When a state government is more likely to support its policy proposal, the UAS trade associations hire more lobbyists to influence it. Their lobbying is effective in persuading the state government to nullify local restrictions.

Our research not only shows a political strategy that technology firms adopt to shape their regulatory environment, but also has important policy implications. Besides removing restrictive regulations, technology firms can also use it to skirt prudent regulations or prevent local regulations from developing. Venue shifting has long-term consequences, and successful venue shifting can permanently alter the regulatory authority for technology firms. If states’ punching down of local regulations jams citizen advocacy and sets up a regulatory template, then more discussion of how the distribution of government power matters to a democratic society will be necessary.

Lori Qingyuan Yue (pictured) is associate professor at the Management Division in Columbia Business School. Her research focuses on the relationship between business and society, especially regarding how organizations respond to contentious social environments and regulation uncertainty. Jue Wang is assistant professor of Management at Penn State University, Smeal School of Business. Her research interests focus on entrepreneurs’ nonmarket strategies and stakeholder theory. Her articles have appeared in such journals as Business & Society and Administrative Science Quarterly.

View all posts by Lori Qingyuan Yue and Jue Wang

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