Chapter 4: A New Institutional Economics approach to Law and Development
An Institutional Critique
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Chapter 4 begins with two issues relating to property rights. Hernando de Soto’s ‘collateral effect’ is outlined and evaluated. It is concluded that there is only limited empirical support for the effect’s existence. Second, it is argued that the term called ‘property rights’ as used in cross-country studies of development does not measure property rights per se but the effectiveness of the legal system in defending individual rights more generally. It then develops an NIE approach to analysing the role the law plays in the process of development. The frameworks used by Oliver Williamson and Douglass North to analyse institutions are outlined and compared. An extended version of Williamson’s approach is used to demonstrate the constraints imposed on institutions by culture and on economic organization by institutions. The chapter closes with a demonstration that culture can explain the differential pace of reform in European transition countries.

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