Governing structural change and externalities in agriculture: toward a normative institutional economics of rural development

The paper aims at a conceptual contribution to the normative economic analysis of rural de-velopment (RD) policies. RD is regarded as a problem of interaction between individuals; (lacking) structural change or the (missing) integration of externalities are therefore recon-structed as coordination rather than allocation problems. A social dilemma is taken as the paradigmatic core of normative institutional economics: how can potential gains from coop-eration be realised by way of institutional policy? Starting from a critique of the hitherto dominating welfare economics conception, three principles for institutional policy are de-rived: (1) the realisation of gains from cooperation as the normative, regulative idea, (2) in-centive-compatible self-regulation as the principle of individual action, and (3) institutional-ised competition as the institution-related principle. An application to rural credit markets demonstrates how these principles can be used to structure institutional policy of RD.