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Institutions Matter

Institutions are the humanly devised constraints, or set of relational contracts that guide public officials' activities. They are made up of formal constraints (e.g. rules, laws, constitutions), informal constraints (e.g. norms of behavior, conventions, codes of conduct), and their enforcement characteristics. For public officials, formal rules are laid down in their code of conduct and operation manuals, in the budget documents, and in the many decrees, directives and instructions through which policy is conveyed. The informal rules are what the officials collectively understand as appropriate behavior, 'how we do things around here'. For example, not vigorously implementing the minister's newly announced scheme might result in a transfer to a position in a remote and inaccessible area.

Institutions provide the incentives that provoke or prohibit certain actions. The institutional environment shapes the expectations of public officials. If there is a rule about the management of records in the organization, or about methods of performance appraisal, then behavior will vary according to whether the official believes that breaches of these rules really will be punished. Similarly, willingness to gear actions to support Ministerial policies is somewhat greater if officials believe that policies will remain in force for a period of time, and will not be undermined by other policies of equal force. Expectations that policies are likely to be soon reversed lead, at best, to second-guessing of what the next ones might look like.

This study adopted a framework for measuring the institutional environment and performance of public officials. In each surveyed country, institutional environment and performance of public sector organizations were measured and regressions were run between performance and institutional environment. In all surveyed countries, survey data analysis provided evidence supporting the theory-based assertion that institutional environment drives performance.

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