The Relationship Between Informal Institutions and Well-being: An Empirical Study of Selected Districts of AJK

Abstract

This paper investigates the relationship between informal
institutions and well-being. Most of the literature highlights the
impact of formal institutions on well-being but the studies
related to informal institutions and well-being are rare. For
formal institutions there are well defined rules and regulations
with an aim to achieve certain objectives in the society, such as
police, judiciary, hospitals and government systems etc. For
informal institutions, the rules and regulations are not
documented, but have social approval and are well observed in
the society. It is assumed that strong formal and informal
institutions increase efficiency and productivity of individuals
and societies through structured processes and by lowering the
transactions cost. For empirical analysis of relationship
between informal institutions and well-being, we use primary
data, conducted under ?Divine Economics Survey – 2017?.
This survey had been conducted in 2017 in Azad Jammu and
Kashmir and in various cities of Pakistan. The survey has many
sections; however, we use the section about institutions and the
basic information. In this paper, response variable is well-being
and measured by single satisfaction question. Because response
variable is discrete in nature and have more than one category,
so ordered logit model is used. Empirical result shows a
positive and significant effect of informal institutions on wellbeing, while controlling other variables. Findings about other
control variables are in line with previous studies.