How Do Local-Level Legal Institutions Promote Development?

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 justice 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.