How can we open the “black box of institutions”? Or, how can we measure credibility?

“To achieve this, we need an Archaeology of Institutions, (…), in other words, an approach by which the change of institutions is meticulously recorded, studied, and conceptualized through the collection of data from every possible source, regardless of whether that source is socio-economic, historical, ethno-anthropological, geographical, psychological, or legal-political.”  P. Ho (2017), Unmaking China’s Development, Cambridge University Press, p. 6.

The measurement of credibility can be concentrated around several indicators.

• The measurement of contestation and disputes through conflict analysis. For examples see Ho, 2014; Yang and Ho, 2019; Arvanitidis and Papagianitsis, 2020; Krul et al., 2020; You et al., forthcoming.
• The calculation of endogenous transaction costs. See, for instance, Fan et al., 2019.
• The assessment of perceptions of institutions along formal, actual and targeted dimensions. See use of the FAT Institutional Framework in Nor-Hisham and Ho, 2016; Sun and Ho, 2020; Wang and Liu, forthcoming.

More info, see Methods in Unmaking China’s Development, pp. 8-16.

Whose credibility are we talking about?

There is a dual dimension to this question. First, it needs to be recognized that conflict is present in any institutional arrangement, credible and non-credible ones. Thus, even when an institution is credible, that does not mean it is harmonious, peaceful and conflict-free (see: how is credibility related to conflict?). Second, credibility theory makes a distinction between the levels of analysis, and the levels at which institutions emerge. Thus, an institution that emerges between a group of actors at the grassroots level could be credible (i.e. functional) inasmuch an institution that emerges at the national level could be non-credible or empty, and vice versa.

Actors must accept credibility, there is no choice. True?

Credibility is not a matter of acceptance, it is a matter of what has endogenously emerged from actors’ interactions. In this sense, “[i]t is also vital to see that an institution is spontaneously (i.e. endogenously) shaped and being shaped by different stakeholders. (…) From this it logically follows that the question of ‘whose credibility?’ is not so much of interest for its divergences per interest group – as their perceptions obviously may vary – but from the vantage point of a total, accumulative outcome for an institution. Ergo, the credibility of shared tenancy and the federal reserve is not gauged by merely asking respondents on the (village and city) street, but by probing respondents’ perceptions from all the interest groups that shape and are shaped by its rules, and from it hermeneutically read what its workings are at that aggregate level.” See: P. Ho, “An Endogenous Theory of Property Rights”, Journal of Peasant Studies, 2016, 43/6, p. 1130.

What about individual versus collective interests?

“Credibility is not about the individual acceptance of a rule. Instead, it relates to the aggregate perceptions of institutions as a common arrangement. For example, if an individual believes that others will behave in a certain way and have no incentive to deviate from the rule by which they are governed, that rule (institution) will be perceived as credible.” See P. Ho, “The ‘Credibility Thesis’ and its Application to Property Rights, Land Use Policy, 2014, 40, Sept, p. 16.

“It is thus not whether an individual actor – be it a farmer, entrepreneur, or state official – personally accepts a rule, but whether an actor expects that other actors will abide by that rule. Consequently, credibility is not about changing rules but about shifts in expectations, while institutions are only credible to the extent that actors expect others to act accordingly.” See P. Ho, “The ‘Credibility Thesis’ and its Application to Property Rights, Land Use Policy, 2014, 40, Sept, p. 17.

Are there examples of credible arrangements going against individual interests?

“[T]he perceived support for land reallocations transcends individual actors’ interests for the larger benefit of the collective and sets this proxy apart from other proxies. It namely resonates with the definition of credibility as a measure of individual actors’ aggregate perceptions of an institution as a jointly shared arrangement. (…) [T]he Chinese state’s failure to establish a secure, formal, and registered lease system tells us something about the collective perception of an institutionalized, insecure land tenure that needs to be upheld, even when going against individual interests. We will see below, that exactly this divide between collective versus individual interests is also shown in the answers of the respondents.” See P. Ho, “The ‘Credibility Thesis’ and its Application to Property Rights, Land Use Policy, 2014, 40, Sept, p. 18.

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“[T]he survey also indicates a paradoxical distinction between collective versus individual interests. Whereas we saw earlier that the overall majority of farmers support an insecure tenure as a means of collective social security, a certain proportion also hopes for more secure tenure for themselves. (…) At this point, we can clearly see a distinction between farmers’ perceptions of the social need for readjustments by the collective versus the legal protection of their individual rights. In other words, the land readjustments might at the individual level lead to discontent, yet, at the collective level they are still perceived as a credible, common arrangement as the readjustments guarantee that everyone has equal access to land.” See P. Ho, “The ‘Credibility Thesis’ and its Application to Property Rights, Land Use Policy, 2014, 40, Sept, pp. 21-22.