Fitting the Facts and Capitalizing on New Opportunities to Redesign Rural Development Programs in Latin America*

In a world of rapidly changing economic opportunities, institutions frequently lag relative to the objective conditions over which they apply, creating dysfunctionalities that can have high social costs. The Indian caste system is a classical example of such institutional slippage between division of labor and social class positions, with not only high welfare costs for members of lower castes but also high overall efficiency costs. Such dysfunctionalities can also characterize policies and programs. Approaches to rural development pursued by national governments and international development agencies tend to be among them. Most rural development programs currently in place have not adjusted to the new realities of the context where they apply. Lack of adjustment of institutions to changes in objective conditions can come from a variety of causes (Akerlof, 1984). They include most frequently imperfect information about emerging realities, path dependency due to high sunken costs in the current institution, coordination failures in achieving a switch among multiple institutional equilibria,