Poverty reduction and social development

Development Centre Studies: Informal Institutions


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Informal Institutions

How Social Norms Help or Hinder Development


October 2007
ISBN 978-92-64-03906-3
€35.00 | $45.00 | £25.00 | ¥4 800


Informal institutions, such as family and kinship structures, traditions, and social norms, have largely been overlooked in the international development debate. This remarkable book reflects the views and experiences of policy makers and experts in their search to make informal institutions an instrument for achieving development objectives.

Dealing with informal institutions can be difficult in a context of weak states with poorly established governance structures. The authors here propose a pragmatic approach in which policies are adapted to local realities and conditions in order to maximise the positive impact on development. Incorporating informal institutions in development strategies will be instrumental in improving development outcomes, including achieving the Millennium Development Goals.


Informal Institutions: How Social Norms Help or Hinder Development is based on the conclusions of an international seminar organised by the OECD Development Centre and the Development Assistance Committee entitled, Informal Institutions: What do we know and what can we do? held in December 2006.



Most people for most of history have relied on informal institutions to mitigate risk and enhance their welfare, yet much remains to be learned. These timely and instructive case studies from a range of sectors help researchers and practitioners to better understand the conditions under which informal institutions can be part of a solution and/or part of the problem of development.

Michael Woolcock, Brooks World Poverty Institute, University of Manchester


The process of development can never be fully understood without addressing the role that institutions play in relationship to it. The OECD should be commended for their contribution on "Informal Institutions: How Social Norms Help or Hinder Development". The book provides a useful overview of some of the key themes such as gender equality, governance and private sector development, and a valuable perspective on how to translate ideas into policy in these realms.

Vijayendra Rao, Lead Economist, Development Research Group, The World Bank





Chapter 1: A Policy Perspective from South Africa

Susan van der Merwe


Informal institutions are very prevalent in South Africa, especially in the second economy where formal institutions often do not exist. The informal mini-bus taxi industry, for example, accounts for up to 65 per cent of the entire commuter market share. Community saving groups provide credits to those who do not have access to formal credit. Government programmes need to integrate informal institutions into policy making in order to maximise potential benefits and eliminate negative side effects.



Chapter 2: How Informal Institutions Matter and What Makes them Change

Indra de Soysa and Johannes Jütting


How and through which channels do informal institutions impact on development and what makes them change? To address both questions a complex analytical framework links informal institutions to development outcomes. Based on this framework, the authors look at determinants of institutional change and provide various examples. Finally, the chapter briefly outlines who could initiate and promote institutional change.



Chapter 3: Informal Institutions and Gender Equality

Gita Sen


Informal institutions are particularly relevant in the context of gender equality. This chapter presents a comprehensive framework which distinguishes several different types of interaction between formal and informal institutions that either favour or oppose gender equality. It also discusses the troubling evidence that sometimes women support informal norms that seem to work against them. Decision makers need to be aware of the specific institutional set-up and adapt their policies to be effective. Engaging women’s organisations and other local initiatives is crucial to enhance gender equality, but there is also room for government and donor initiatives. In order to gradually replace hierarchical patterns that oppose gender equality, aid agencies can help change norms and attitudes by designing adequate formal institutions.



Chapter 4: Governance and Accountability

Nils Boesen


This chapter describes the interplay between formal and informal institutions, making a distinction between rule-based and relation-based governance systems. Different forms of interaction are highlighted, ranging from complementary to competitive. A pragmatic approach to dealing with informal institutions is called for: hastily introducing formal mechanisms might sometimes even do more harm than good. Policy makers thus need to carefully select which institutions to change and which ones to keep. Realistic policy objectives for transforming (negative) informal institutions need to respect the existing power balance in order to gain maximum support of different political actors.



Chapter 5: How Business Interacts with Informal Institutions

Stephen Nicholas and Elizabeth Maitland


Informal institutions are critical in countries with weak formal economic institutions, such as inadequate bankruptcy and contract laws. In these countries, kinship systems which are usually restricted to members of the same ethnicity or religion, offer a more reliable mechanism to enforce agreements. Based on experiences from Hong Kong, China and India, this chapter illustrates how the different access to formal institutions influences the design of contractual arrangements. It is vital to improve the flow of information about the availability, reliability and skill levels of suppliers, distributors and partner firms, which will reduce the costs of designing and managing contracts.



Chapter 6: A DAC Perspective on Donor Policy and Practice

Richard Manning and Eduard Westreicher


Given their importance for development, informal institutions matter for the international donor community. This chapter summarised lessons learned in exploiting the multiple linkages between informal institutions and development outcomes. It also highlights current and future work streams of the OECD Development Assistance Committee's Network on Governance to further our knowledge on the various facets of informal institutions.


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