Formal Of A Informal Institution Essays

1330 Words Oct 9th, 2016 6 Pages
Formal institutions refer to some written rules, including the laws and regulations of the national and local governments, contract, and enterprises’ and department’s rules. Formal institutions usually rely on rigid means to ensure government orders, contracts, and articles of association works. Informal institution refers to that it formed in the process of long-term social interaction, and accepted in the protocols, the common code of conduct. In the informal institution, ideology is in a core position, because it not only contains values, ethics, morality, customs, and habits, but also forms some "a priori" modes for formal institutional arrangements.
When both parties choose one constraint to ensure implementation of the agreement, they would often consider informal institution firstly. As long as both parties are in the same community, they understand and trust each other. They can use ready-made informal institution to ensure the execution of the agreement. The marginal revenue of informal institution is greater than the cost. Secondly, because of opportunistic tendencies, although there exist constraints of informal institution, when the revenue of default can offset the cost, one party will choose to default. Thirdly, due to the role of labor and specialization, market expands unceasingly, people must cooperate and trade with some strangers. This will inevitably lead to asymmetric distribution of technical knowledge. On the premise of no informal institutional…

Related Documents