Can informal institutions for social welfare be understood as efficient? E.g. in relation to Eggertsson’s 1998 paper on risk sharing in pre-modern Iceland?

Similar to the questions listed below, this question touches on the eternal dilemma between Institutional Form versus Performance. According to the Credibility Thesis there is no way to relate informality (= Institutional Form) to efficiency (= Institutional Performance) as both are time and space-dependent.

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Moreover, in his paper, Eggertsson suggests that informality (or as he terms it “non-market institutional arrangements”) are emblematic for “traditional farm societies”, while “intertemporal market transactions” typify the “advanced industrial economies” (1998: p. 5). Credibility theory would steer away from teleological considerations. Differently worded, informality is not excluded to “traditional farm societies” to the same degree that formality is not exclusive to “advanced industrial economies.”

See Thrainn Eggertsson (1998), Sources of Risk, Institutions for Survival, and a Game against Nature in Premodern Iceland, Explorations in Economic History, 35(1), pp. 1-30.

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