Introduction and Contents:

Sustainable livelihoods development is concerned with people accumulating and using assets to improve their well being and to lift themselves out of poverty. The effectiveness and productivity of assets in supporting peoples’ livelihoods depends not only on direct asset productivity and value, but also on the options, constraints and costs involved in people exercising rights to assets.

New Institutional Economics (NIE) brings into the economic analysis of livelihoods the study of institutions affecting these rights to assets. This provides powerful and practical insights into the opportunities for and constraints on peoples’ livelihood development.

NIE analysis begins from a key distinction between the physical transformation activities by which people use assets (or asset combinations) to produce goods or services, and the human transaction activities by which people hold and exchange assets, goods and services and combine them to allow desired physical transformations. It then investigates how transaction activities are influenced by the characteristics of people engaged in them, by asset (or service) characteristics, and by institutions. Institutions are defined as the formal or informal rules governing peoples’ behaviour and, as ‘the rules of the game’, are distinguished from organisations which, along with individuals, are considered as ‘players in the game’.

New institutional economics can support sustainable livelihoods analysis and action by providing insights helpful in:

• understanding how institutional factors may affect the way that changes in technology, infrastructure or policy can impact on people’s livelihoods.
• evaluating the equitability, effectiveness and relative efficiency of different governance structures, including both state and private service delivery agencies and institutions that determine access to resources (for example financial capital, land, or water);
• assessing potential outcomes that can be achieved under given institutional conditions; and
• identifying entry points (such as the recrafting of institutions) for reducing constraints to productive asset use.

This short overview of NIE is arranged in two main sections which outline first the importance of understanding institutions in livelihoods development and second potential ways of using NIE within the SL approach. These are supported by a glossary, and a section containing a brief annotated bibliography and a selection of useful web links giving more detail on the various concepts and approaches of NIE.