INTRODUCTION

The previous chapter examined the likelihood of formal acceptance of institutional reforms, proposed by a foreign donor agency, by a recipient country government. It was shown that this depends on the contractual arrangements between donors, private contractors and recipient organisations. Asymmetric information flows in the implementation process could easily derail the proposed reforms from their target, unless the reform movement and the recipient country counterpart institutions are well embedded in the local political environment. In this chapter we move one step further in the delivery process of donor-financed institutional reform programmes and examine what happens inside the recipient country, once a reform proposed by an external donor agency has been formally – de jure – accepted by the recipient country government. It offers an abstraction of the agency problems that may occur upstream of de jure acceptance and concentrates on the downstream de facto behaviour of citizens. It focuses on endogenous processes that determine the effectiveness of institutional reforms, once they have been formally adopted by governments. Formal or de jure reform in itself is a necessary but not a sufficient condition for effective application of reforms.

In order to facilitate impersonal exchange in modern market economies, an effective framework of formal institutions is required. Wide-ranging institutional reforms are therefore an integral part of many reform programmes in developing and transition countries. ‘Normal’ institutional reform processes are generated endogenously in countries, through a variety of social, economic and political forces.