Formal and Informal Rules in the Debate Over the Effectiveness of Institutions

Abstract

The perspective of institutions as equilibria integrates the approache of institutions as rules, which is much more comprehensive in relation to the dynamics of the preferences of individuals and the way in which they relate to rules, in various situations. I show that equilibrium depends both on the behaviour of actors and the institutions that govern – it is adjusted from within the institution but not exclusively by its formal rules, but by the fact that rational and free individuals choose to comply with the rules.
I empashize that there are situations where equilibria are determined by several types of rules: formal and informal. In some cases, equilibria determined by informal rules undermine those resulting from formal rules, while in other cases, the two complete each other and maintain the institution. Thus, formal rules are not necessarily the rules in use as well, therefore a more appropriate analysis of institutions should lay out what type of rules is more influential: formal or informal?