Understanding informal institutions: Networks and communities in rural development

A major theme within the literature on rural development is that the particular mix of formal and informal institutions present in any situation is a key determinant of development outcomes. However, there is some evidence that in policy and practice there are considerable difficulties in articulating formal organizational realities with the rules and norms embedded in informally constructed social structures. The same difficulty is in evidence in the New Institutional Economics, where the mainstream literature concedes the critical importance of informal and cultural institutions, but has thus far failed to develop an adequate theory of the informal. This recognized weakness is all the more urgent because of the growing emphasis on governance, participation and social learning evident in European rural development policy and practice. A clear understanding of the opportunities and pitfalls that arise in working with informal institutions is required, and therefore theories that provide analytical and operational traction in the ‘parallel’ realities of the formal and the informal. This paper starts from the point of view that at the heart of the institutional dilemma lies a difficulty in conceptualising the informal social structures in which informal institutions are reproduced. A review of relevant bodies of theory is presented; drawing on sociological network theory, perspectives on governance and social capital, and new developments in the organisational and management literature. These suggest some starting points for a theory of informal social realities and the institutions that structure them. The paper concludes with a presentation of a theoretical framework for understanding informal structures in rural development in terms of networks and communities.