How Can NIE Inform Sustainable Livelihoods Analysis and Actions? 2.2.1 Identifying Entry Points: Analysing Existing Institutions - Are they Enabling or Disabling?

Given the centrality of institutions to the development process, NIE identifies a number of potential entry points for interventions designed to improve livelihood options. It can help us to answer a range of questions such as

• How are transaction costs likely to affect the net benefit calculation of a given intervention?
• What are the most efficient institutional arrangements for achieving a given contractual outcome?
• Where can viable modifications in the institutional environment serve to reduce transaction costs and improve access, productivity and equity?
• Is it feasible to aim for ‘participatory’ solutions, given the institutional environment, power relations and the transaction costs that are likely to prevail?

Are Existing Institutions Enabling or Disabling?
We illustrate this with examples focussing on the potential role for NIE first in the analysis of existing institutions and then in the evaluation of innovations in institutional arrangements.

Institutions can facilitate or hinder the generation of wealth. Livelihoods analysis should therefore screen existing institutions for their effectiveness. Only when this analysis has taken place should analysts investigate the possibilities for institutional innovations aimed at improving livelihood outcomes.

Institutions form for a variety of reasons (see section 1.2). The reason for the formation of a particular institution, whilst it may appear to have negative distributional impacts, may actually enable poor people to increase their livelihood options. A striking example is given in Case study 3. This shows how a seemingly highly extractive institution may in fact be relatively efficient, given the prevailing institutional environment. In analysing the effectiveness of an institution it is therefore crucial to understand the costs and benefits associated with its existence before comparing it with alternative arrangements and considering how it may be reformed to improve the potential livelihood options of the poor.

See Case Study 3 - Farmer and consumer benefits from trader monopolies?

We also need to recognise that commonly held beliefs about appropriate institutions are increasingly challenged by the existence of external influences. Case study 4 indicates that the outcomes associated with a set of institutions must not be taken for granted, as they are, themselves, a central component of the analysis.