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Analyzing Legal Formality and Informality: Lessons From Land-Titling and Microfinance Programs

Stiglitz, Joseph E.; Haldar, Antara

Despite the fact that China has experienced incredible growth, there is a great deal of pressure on it to adopt a more formal legal framework—particularly with respect to economic matters. Chicago School law and economics—emphasizing the importance of formal law for development, particularly for protecting private property and the enforcing of contracts—has been influential in this discourse.2 This book has argued, however, that Chicago-style law and economics makes assumptions about the economy, as well as what the law is and how it functions, that are far from trivial and mostly untrue. Kennedy and Stiglitz in their introduction to this volume, as well as Chapters 1, 4, and 5, highlight some of these limitations and analyze their implications. Here, we focus on one particular aspect of this legal tradition: the Chicago School underestimates the difficulty of fully articulating a set of rules, as well as the role that social norms play in the legal process. As we will show, property rights are fundamentally affected by norms of use, and contracts are never complete. We will focus on four central questions. First, how does the de Soto scheme perform? In particular, as the most recent vintage of high-profile formal law reform projects, does it overcome the chronic problems faced by its predecessors—legal transplants that fail to “take root” in the developing world? Second, how does the more informal, community-based Grameen model perform, especially in relative terms? Third, how do these two models relate to the Chinese experience? Fourth, how can the relationship between law and norms be characterized, and what insights do these two experiments have for our understanding of this relationship? To what extent should we view formal law and informal norms as substitutes or complements? The central task of the chapter will be to draw insights from the comparison of formal and informal means to achieve a common developmental goal—in this case, access to credit—for systems of regulation in general. The chapter is divided into four parts. The first frames the discussion, while the following section compares the two alternative models of institutional evolution—the Yunus and de Soto programs—in terms of their efficiency and equity impacts and analyzes them in static and dynamic terms. The third section examines how the two models relate to the Chinese experience and the fourth section concludes.


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Law and Development with Chinese Characteristics: Institutions for Promoting Development in the Twenty-First Century
Oxford University Press

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April 15, 2019