Credibility thesis

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The credibility thesis is a proposed heterodox theoretical framework for understanding how societal institutions or social rules come about and evolve. It posits that institutions emerge from intentional institution-building but never in the originally intended form. [1] Instead, institutional development is endogenous and spontaneously ordered and institutional persistence can be explained by their credibility, [2] which is provided by the function that particular institutions serve rather than their theoretical or ideological form. The credibility thesis can be applied to explain, for example, why purported institutional improvements do not take hold as part of structural adjustment programs, while other economies in the developing world deliver growth despite absence of clear and strong market mechanisms such as indisputable private property rights or clearly delineated and registered land tenure. The thesis has been applied to explain the failure and success of institutional reforms for various sectors and property rights, including but not limited to, land, housing, informal housing and slums, natural resources, climate change policy and environmental policy.

Contents

Postulates of the credibility thesis

According to the credibility thesis, institutional persistence, meaning the survival and change of particular institutions through time is determined by the function of the institution and actors' expectations of the institution to play that function. The Credibility Thesis has put forward “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. In different wording, institutional function presides over form; the former can be expressed by its credibility, that is, the perceived social support at a given time and space.” [1] Or, as Pero and Smith phrased “institutional credibility refers to peoples’ acceptance of an institution based on their perceptions of that institutions’ accountability, representation, legitimacy, transparency, fairness and justice.” [3]

In light of the above, the thesis predicts that institutions that persist over time likely are credible, thus functional. If not, they would have changed or gone extinct. This principle holds for whatever form an institution may assume, regardless whether it is formal or informal, public or private, secure or insecure. A typical example is sharecropping, which has been regarded as economically inefficient [4] or "second-best". [5] However, its persistence throughout the ages has challenged this premise, [6] leading others to conclude that it is efficient, thus credible and functional. [7] That credibility has been confirmed in other studies. [8] [9] [10] In this context, Fan et al. noted: “Compared with other institutional theories, the credibility thesis places more emphasis on the function of the institution. (…) The credibility thesis explains successfully why some seemingly imperfect institutions, even without clear property rights, have persisted and been championed, while other seemingly perfect institutions have had poor operation effects.” [11]

Changes in institutional arrangements, such as changes from informal land tenure and informal housing to a formalized real estate market or gradually declining prevalence of formal marriage or customary rights, are brought about by rule-making in a multi-actor playing field, where even the strongest actors cannot fully dictate institutional arrangements. In effect, when powerful actors exogenously impose institutions that contradict the evolutionary flow of endogenously emerged functions, the newly designed arrangements will invariably develop into "empty institutions" and "non credible" institutions. [12]

An institution that appears stable and unchanging over time is often alleged to exist in an equilibrium wherein actors' conflicting interests on what form the institution should take are locked in a frozen conflict. For example, whether land holdings should be registered in a cadastre or if informal exchange of payment for use rights can suffice as confirmation of a land sale, constitute two possible institutional arrangements and either can be beneficial to different actors' interests. That no actor perceives an immediate opportunity to change the arrangement to their advantage is a sign of the credibility of the assignment and the source of the equilibrium of institutional arrangement. However, in actuality disequilibrium characterises institutional arrangements and equilibrium is transitory and rare. What is perceived as persistence of institutions is, in fact, the occurrence of infinitesimally small institutional changes over time under a veneer of apparent stability. In this context, the credibility thesis is predicated upon the notion of dynamic disequilibrium. [13] It is also why in this respect the credibility theory is juxtaposed to structural functionalism, which is based on presupposed equilibrium. [14] [15]

A series of underlying postulates for the credibility thesis has been proposed:

Key concepts

TermDefinitionExample
CredibilityPerceived social support of an institutional arrangement at a given time and space; a measure of individual actors' aggregate perceptions of an institution as a jointly shared arrangement [17] Informal settlements [18] and extra-legal housing that provide non-state social welfare for low-income residents. [19]
Institutional functionThe use that a particular institutional arrangement can provide to actors. [20] In the agricultural economy, land is a primary asset from a subsistence point of view: it provides food security, enables utilization of family labour, and reduces vulnerability [21] [22] The agricultural lease system in China functions as a social welfare net for the vast surplus of China's rural labour. [1] [23]
Empty institution“[Institutional] compromises over sensitive political issues. The interests opposed to them ensure that they are established in such a way that they cannot achieve their aims, whereas the interests supporting them win a pyrrhic victory as their rules, as represented by the new institution, have no practical impact on social actors’ behaviour". [24] Vilhelm Aubert observed that the Housemaid Law in Norway regulating the working conditions of domestic workers in Norway was on the books and technically being implemented but had not any effect. [25]
Non-credible institutionAn institution that is being enforced by a powerful actor, complied by but not accepted by others.Expropriation of customary Native Title for dam-building and privatization of common property of indigenous peoples in Malaysia. [26] Evictions of peasants and urban citizens in China. [27]
Dynamic disequilibriumContrary to the concept that institutions settle around equilibrium, actors’ interactions are defined as an ever-changing and conflicting process in which a stable status is never achieved. It will be proposed … as a Theorem on “Dynamic Disequilibrium”: institutional change as a process of perpetual alteration, however, by which the pace of change varies; at times imperceptibly slow, and at other times, sudden and with shocks. [16] "[O]ngoing subtle shifts beneath the surface of apparently stable formal institutions." [28]
Institutional formThe categorical description of institutional arrangements.Secure, private, formal as opposed to fuzzy, common, and customary property rights. [29]

Methodological approaches

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Nail house
Chongqing yangjiaping 2007.jpg
Conflicting interests over how institutions should be arranged drive institutional design such as the limits to refuse to vacate condemned property, such as this nail house in Chongqing in 2007 or another in Rotterdam in 2018. [30]