How Can NIE Inform Sustainable Livelihoods Analysis and Actions? 2.2.2 Idetifying Institutional Innnovations

Where an analysis of existing institutions determines that they are not functioning as well as they might, then it is appropriate to look for institutional innovations that can reduce transaction costs and risks. This may be achieved by changing arrangements for and costs in screening and monitoring resources or other parties, by strengthening property right enforcement, by improving information systems, or by encouraging economies of scale through consolidated management, use or ownership under private, state or collective arrangements. In seeking institutional innovations, one needs to bear in mind that:

• Such modifications need to be considered in the light of particular asset characteristics and of existing bundles of formal and informal institutions, which will differ, often substantially, between communities.
• Institutional innovation can be aimed at macro and/or micro levels of decision making. Case study 5 illustrates a number of potential advantages and pitfalls of decentralisation of government activities.

The characteristics of the assets and the institutional environment within which livelihood strategies are functioning are central and reflection on these aspects can assist greatly in determining appropriate entry points and innovations. Financial markets, for example, face particular institutional difficulties associated with the characteristics of financial services.

When an institutional innovation is pursued, it is crucial that the interests of powerful groups are taken into account and that there are incentives and/or mechanisms to promote their support for any change.