Abstract :
This paper develops a framework and some hypotheses regarding the impact of
local- level, informal legal institutions on three economic outcomes: aggregate
growth, inequality, and human capabilities. It presents a set of stylized differences
between formal and informal legal systems, identifies the pathways through which
formal systems promote economic outcomes, reflects on what the stylized differences
mean for the potential impact of informal legal institutions on economic
outcomes, and looks at extant case studies to examine the plausibility of the arguments
presented. The paper concludes that local-level, informal legal institutions
can support social substitutes for the enforcement of contracts, although these
substitutes tend to be limited in range and scale; they are flexible and could conceivably
be adapted to serve the interests of the poor and marginalized if supportive
organizational and social resources could be brought to support the legal
claims of the disempowered; and they are more likely to support personal integrity
rights than the positive liberties that are also constitutive of development as freedom
