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This chapter develops a causal model for explaining the performance of liberal democracies. The model builds on explanatory models from three theoretical strands: comparative research on democracy, comparative public policy, and the veto player approach advocated in the context of the new institutionalism. It integrates formal and informal institutional factors as well as the three most-important non-institutional factors for explaining performance: the national level of wealth, the ideological orientation of the government, and the openness of the economy. The causal relationship between these factors is conceptualized on the basis of rational choice institutionalism. Furthermore, this chapter includes a discussion of the constitutional and partisan veto-player indices for measuring institutions. It concludes with a set of specific hypotheses on the effect of formal and informal institutions on political effectiveness.

This chapter examines the hypotheses about the impact of formal and informal institutions on the level, stability, and the structure of political effectiveness of western democracies. It presents a re-analysis of Arend Lijphart's Pattern of Democracy (1999) and investigates the validity of various veto player indices. It is shown that political institutions do matter, but formal and informal institutions cause different effects; both matter only sometimes and only to a limited degree.

Post-conflict reconstruction strategies typically focus on identifying and repairing formal governing institutions and physical infrastructures, and tend to ignore the informal arrangements that sustain people over years of state failure. This paper shows how informal institutions were critical to the survival of local people during state collapse and violent conflicts in Liberia. It argues that there are very healthy informal arrangements that can become important building blocks in post-conflict governance arrangements if used to buttress formal institutions, and that unlocking such capital is important in enabling people to make transitions from short-term survival strategies to more productive long-term arrangements. Failure to recognize these assets have frequently led to the presumption of a social capital deficit and, therefore, the need to look externally for such a resource.

This chapter examines the role of informal institutions in economic transition. It argues that informal institutions complement formal institutions in reducing the costs of transactions and describes the formulation of a model of institutional change. It proposes three possible reform strategies which form the basis for the typology of patterns of institutional change in transition economies. The first reform strategy emphasizes the stability of the formal institutional framework with only gradual changes in laws and regulation. The second strategy involves changing at one stroke the formal institutional framework to conform fully to the basic requirements of a new economic system. The third strategy accepts the limited capability of government in most transition economies. Institutional design is guided by political feasibility. This chapter argues that only China and East Germany fulfilled the condition of a strong state necessary for the adoption of the first or second strategy. Most other transitions fall into the third category.

This chapter begins by noting that the state offers numerous faces, from the great rituals it enacts to the opaque daily transactions of its multiple bureaucracies. It also stresses that those faces of the state vary substantially depending on the social position of those it interacts with, especially in countries marred by deep inequality and extensive poverty. These multiple faces make it difficult to find and reconstruct theoretically the underlying unity of the state, which has led several currents to deny it; the chapter argues that such unity derives from the cascade of legal authorizations that result from the legal system of the state. Furthermore, against what some legal and democratic theories presume, even under democratic regimes, in some countries the state, especially as a legal system, may be absent in sometimes extensive regions (brown areas) and in relation to some social sectors. On a related matter, the chapter discusses some legal aspects of the expansion of capitalism, including the features it has had on countries outside of the Northwest.

Chapter 3 sets out the importance of institutions for fostering entrepreneurship. It demonstrates that formal institutions, defined as rules and regulations, and informal institutions, defined as norms and values, change over time, and that the overall framework can either encourage or hold back entrepreneurship. The chapter builds on contemporary research on institutions to show that post-conflict economies being studied have seen significant change and have thus experienced a ‘path break’ due to the impacts of war and subsequent independence. They have then been required to create new institutional arrangements which seek to foster entrepreneurship and economic development. Importantly for economies which have experienced crisis and significant outward migration, institutions are important if the diaspora are to be attracted home. Weak institutional frameworks will deter return as individuals will weigh the differential risks and returns associated with their home and host countries. This will impact on not only the level of investment in the homeland, but also the types of entrepreneurial activities that are invested in and how they develop over time.

This chapter provides a conclusion and comprises summarized findings. In addition, this chapter addresses a serious challenge that faces most students of institutions: Are institutions epiphenomenal? It argues that rural China’s experiences under the Chinese Communist Party regime confirm the significant influence of institutions on its governance which cannot be fully attributed to the institutions simply transmitting the impact of structural conditions. This chapter also provides suggestions on how to adequately contextualize our understanding of institutional change and its consequences. Particularly, it emphasizes the necessity of establishing a comprehensive framework to examine the possible dynamics among different types of institutions and moving beyond the institutional environment by bringing in the pertinent social environment. This chapter further discusses the broader implications of this research for the literature on formal and informal institutions, institutional change, local governance, and social capital.

Many analyses of long-term development neglect the importance of formal and informal political and economic institutions in developing countries. This chapter discusses the nature of such institutions, their endogeneity and persistence over time as well as their impact on growth, inequality, and political stability. The chapter places particular attention on the institutions that build the market and facilitate economic exchange, and on the public organizations mandated with their enforcement. It then discusses their impact on growth and macroeconomic stability as well as the role played by informal institutions in developing countries where formal institutions are often perceived as a costly obstacle to economic development.

This chapter analyses a semi-feudal context marked by an informal governance system controlled by a dominant caste community. Dalit women cultivators here are engaged in an on-going struggle to secure agricultural land title. The struggle demonstrates the interaction between formal and informal institutions, which produces competing notions of rights, entitlements, and obligations. In particular, informal power holders seek to preserve patronage relations within a shifting socio-political context by influencing state entitlement arrangements. This creates distinct strategic pathways for Dalit women to secure entitlements: they turn to state institutions in order to advance their claims while simultaneously delinking from informal institutions. An analysis of the organisational and collective action strategies in this adverse environment indicates the ways in which women negotiate multiple layers of relations and interactions in claiming value-laden resources such as land. In order to do this, external brokerage is necessary to overcome the women’s knowledge/power limitations.

Chapter 3 lays out the main argument of the book, that in the context of the invisibility bargain, a democratic government has a political incentive to prioritize the interests of citizens over migrants (even when formal institutions promise protections), and thus may be an inadequate guarantor of security in migrant-receiving areas. The resulting gaps in formal state protections can increase migrant vulnerability and escalate conflict between migrants and citizens. Governance networks that connect international organizations, nonstate actors and the state can emerge to fill these gaps, adapting innovative forms of governance that complement, substitute, or compete with state authority and security provision. More diverse and dense networks provide a greater number of potential access points through which migrants might gain the resources and protections they need to thrive in the host community. The chapter provides a theoretical framework for understanding how governance networks contribute to host-migrant human security.

This chapter argues that despite the voluminous literature on Chinese politics we actually know very little about how the Chinese one-Party state works, and how it has held together through decades of tumultuous social, economic and political change. In a political system in which personal power relations trump formal rules, the chapter argues that more attention must be given to the role of informal institutions in governing political behavior. The chapter outlines the approach and methodology used to examine informal institutions in Chinese politics and the significance of the findings. It argues that understanding the unwritten rules of Chinese officialdom in this corner of China can help us to understand the resilience of the one-Party state.

This chapter establishes the link between knowledge economy and institutional capital. The various sections of the chapter deal with the meaning and definitions of institutions, formal and informal institutions, and micro and macro implications of institutions.

From banking standards to data privacy, regulation has entered the lexicon of international affairs. Unlike trade or currencies, however, there are few formal treaty-based international organizations resolving disputes or setting the rules for the world. Instead, global regulation is frequently shaped by informal networks of regulators or at times by the extraterritorial extension of domestic law by large markets. Drawing on work from historical institutionalism, this chapter argues that the global politics of regulation is in important respects the product of domestic and international institutions interacting over time and across space. In developing three mechanisms—relative sequencing, cross-national layering, and transnational feedbacks—the chapter argues that historical institutionalism helps address lacunae in extant approaches to global regulation.

Institutions and ownership play a central role in the transformation and development of the beer market and the brewing industry. Institutions set the external environment of the brewery through both formal requirements and the informal acceptance of these companies’ operations by the public, whereas the owners and their managers adapt to these external challenges but also follow their own agenda in setting up strategies for innovation, marketing, takeovers, and so on. The thirteen chapters in this book cover changes in a range of areas, such as excise tax, zoning regulation, trade liberalization, consumers’ habits and tastes for beer, and sales regulation of alcohol. Breweries’ responses have included a craft beer revolution with a surge in demand for special flowered hops, a globalization strategy from the macrobreweries, outsourcing by contract brewing, and knowledge exchange for small-sized breweries, among others.

This chapter examines the role of informal tools in coalition management. Informal tools are understood as the ‘exchange of favours’: access to electoral resources, favourable state treatment of allies’ business interests, the conferral of lucrative or influential positions outside of the legislature and the cabinet, and, in some cases, illicit forms of exchange. It discusses the costs associated with these tools (financial, political, personal, public), and the factors that exacerbate or mitigate these costs: system-level factors (rule of law and personal-vote electoral systems), coalition-level factors (coalition size and congruence with the cabinet coalition), and conjunctural factors (proximity to the next election). The ways in which presidents deploy this tool are illustrated with detailed examples from Ecuador, Armenia, and Kenya. Finally, data from surveys of MPs are analysed to illustrate the relative costs of deploying the exchange of favours under different country conditions.

That illegal markets thrive is something of a puzzle to sociology. Despite the lack of legal frames—crucial for conflict resolution, regulation of competition, and formal sources of credit—new illegal markets continue to emerge. Thus an analysis of informal social mechanisms is essential for a better understanding of illegal markets’ internal coordination. The main goal of this chapter is to dissect the role of one of these mechanisms—state-sponsored protection rackets—in the context of illegal markets. This type of protection racket means a selective non-enforcement of the law, an action carried out intentionally by politicians and police forces in order to capture economic resources. I provide evidence that such an informal mechanism is present on a massive scale at La Salada, a huge illegal and informal marketplace close to Buenos Aires city center. The chapter seeks to make a contribution on informal mechanisms fostering unlawful exchanges.