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Measuring indicators with impact

The Economist has a large and very interesting piece on the migration of World Bank thinking towards recognising that 'institutions' are important.

Part of the difficulty, as Dani Rodrik of Harvard University points out, is that typical measures capture institutional outcomes, not institutional forms. The “rule of law”, for example, measures how secure an investor feels about his property. It tells us little about precisely what makes him feel that way.

That is true of many indicators, but not of Doing Business. The Doing Business indicators focus on objective measurements - laws on the books - and ask professionals such as incorporation lawyers to say which laws are enforced and how long and expensive the procedure is.

The end result is a measure of a specific institution - for instance, contract enforcement - that focuses not only on the outcomes but on the procedures that produced those outcomes. It's hard to get more specific about institutional forms than, for instance, this account of contract enforcement in, to pick a country at random, Belarus.

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