The Wealth and Poverty of Self-Governing Communities

Hayek's emphasis on the rule of law as a source of economic and political well-being underestimates how customary and informal institutions contribute to the common good in countries where the government is predatory. While customary governance can sometime be subjected to local tyrannies, it is often characterized by robust constraints on local decision-makers that enable good governance. Our analysis shows that Elinor Ostrom's studies of self-governance are a necessary complement to Hayek's theories of the path to well-being.