What is the relation between politics and credibility?
Politics would in the view of the Credibility Thesis be seen as part of the incessant interactions, bargaining and conflict between actors as a result of which institutions endogenously arise (the notion of spontaneous order as put forward by Ferguson, Menger, Veblen, and – surprisingly, on the other theoretical side: Hayek). See: P. Ho, “In Defense of Endogenous, Spontaneously Ordered Development”, Journal of Peasant Studies, 2013, 40/6, p. 1092.
What about enforcement? Does informality result from non-enforcement?
Not always, but there are examples. For instance, with regards to the titling or privatization of informal housing and settlements, governments sometimes opt not to enforce, although legally prohibiting such arrangements. As a result, the level of conflict is low. This is a typical example of an “empty institution”, because “[p]articularly when sensitive issues are at the center stage of social and political debate, ‘empty’ institutions tend to surface as a sort of institutional compromise. In these situations, institutions can become detached or ‘decoupled’ from social actors’ behavior to avoid conflict. As such, the empty institution is, by and large, ineffective and ignored, yet simultaneously socially accepted, little contested and, in effect, to a certain degree credible.” See P. Ho, “Empty Institutions, Non-Credibility and Pastoralism”, Journal of Peasant Studies, 2016, 43/6, p. 1147.
Is common property more credible than private or public property?
This question touches on the eternal dilemma between Institutional Form versus Performance that the Credibility Thesis aims to solve through a refocusing towards Function. For this reason: “One should be careful not to idolize state or common property, lest one commits a mistake to the same degree that neo-liberal and neo-classical thought idolize private property.” See: P. Ho, “An Endogenous Theory of Property Rights”, Journal of Peasant Studies, 2016, 43/6, p. 1138.
“Rather than overemphasizing state-led or communal development as a panacea for economic and societal ills, the assembled studies have a fundamentally different story to tell: private property rights are not as important as the neo-liberal, neo-classical paradigms want us to believe, as other ownership types have equally critical roles in development. It all depends on time and place. Yet state, communal and private ownership should never be regarded as a given or precondition, but like any other institutional arrangement, they change endogenously according to the function they fulfill under ever-shifting socio-economic, political and cultural environments.” See: P. Ho, “An Endogenous Theory of Property Rights”, Journal of Peasant Studies, 2016, 43/6, p. 1138.
Why is informality accepted?
Informality is only accepted inasmuch as it fulfills a function for social actors and economic agents. The fact that institutions are informal (or formal, for that matter), is of no relevance, what counts is the level of credibility (i.e. functionality) that these institutions rally at a given time and space. Thus, the fact that informal housing and land tenure are credible today is not implying that they might still be credible a few years down the road, or in another spatial context. That outcome depends on the interactions, bargaining and conflict of actors that shapes institutions.
Does the flexibility of institutions affect investment behavior?
Not necessarily, and it depends on how flexibility is defined. If “flexibility” is interpreted as “informal” (as opposed to “inflexible”, formal institutions), the Credibility Thesis predicts that one might encounter situations in which flexible institutions could lead to less investments, inasmuch as we would find situations in which they lead to more investments, or we find no influence at all. Similar confusion would result from studies into the relation between inflexible institutions and investment behavior. For the same reason, regression analyses aiming to correlate form to performance yield contradictory results (regardless whether we replace “flexibility” with “democracy” or “private property”, and “investments” with “GDP” or “price”).
In effect: “Tenure security and formal title might rally social support in some cases; yet exactly the same thing could be said for insecure and informal property rights.” It is the reason why it is posited “that what ultimately determines the performance of institutions is not their form in terms of formality, privatization, or security, but their spatially and temporally defined function.” See P. Ho, “The ‘Credibility Thesis’ and its Application to Property Rights, Land Use Policy, 2014, 40, Sept, pp. 13-14.
What about modeling?
As credibility theory is predicated upon endogeneity – i.e. dependent and independent variables mutually influence each other – there seems little cause for modeling institutional change. It is why it is difficult to propagate endogeneity as a principle albeit evident when observing real-life phenomena. Yet, the contrary is true. It depends on the premises of the model. If that starts from endogeneity (such as agent-based modeling) much is possible.
Is it possible to design institutions?
Some would hold that “endogeneity and spontaneous order imply conservatism – that is, preservation of the status quo. Bluntly put, no matter whether informal, customary land rights or child labor is involved, endogeneity allegedly assumes an autonomous evolution in which any development intervention is futile. That is not the message (…), nor is it the case. As aptly worded by Aligica and Boettke (2009, 25): ‘Design and spontaneous order are not irreconcilable’.” See P. Ho, “An Endogenous Theory of Property Rights”, Journal of Peasant Studies, 2016, 43/6, p. 1138-9.
“Driven by the use and disuse of their function, institutions spontaneously arise, persist and vanish, much like ocean currents arise, persist and vanish. However, in sailing the currents of development, good seamanship is indispensable, which entails knowing which waters are easy to negotiate, and which waters are not. That knowledge signifies comprehension or, minimally, the recognition of the array and scales of development interventions that can be used, in relation to the endogenous conditions under which they may produce an effect or are likely to fail.
In this context, [we put] forward a possible ‘checklist’ for a ‘no-go’ that links levels of credibility to possible intervention and non-intervention. It is hoped that this ‘Credibility Scales and Intervention’ (CSI) checklist can assist policymakers in becoming aware of, and better reviewing, their opportunities and constraints.” See P. Ho, “An Endogenous Theory of Property Rights”, Journal of Peasant Studies, 2016, 43/6, p. 1139.