Wellbeing and Informal Institutions: An Empirical Analysis

The study investigates the relationship between informal institutions and wellbeing. We find in the literature work related to formal institutions and wellbeing. However, the studies related to informal institution and wellbeing are rare. Formal institutions are rules and regulations which are well defined and aims for achieving some objective in the society such as police, judiciary, government etc. In the other hand informal institutions are rules which are not documented but observed in the society for long and have social approval. It is assumed that strong formal and informal institutions increase efficiency and productivity of individuals and societies by lowering transactions cost. For empirical analysis of relationship between informal institution and wellbeing we use primary data conducted under Divine Economics Survey 2017. This survey has 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. Our response variable is wellbeing and measured by single satisfaction question. Because our response variable is discrete in nature and have more than one category so ordered logit model is used. Results show a positive and significant effect of informal institution on wellbeing while controlling for other variables. Findings about other control variables are in line with previous studies