The credibility thesis is a proposed heterodox theoretical framework for understanding how societal institutions or social rules come about and evolve. It posits that institutions emerge from intentional institution-building but never in the originally intended form.[1] Instead, institutional development is endogenous and spontaneously ordered and institutional persistence can be explained by their credibility,[2] which is provided by the function that particular institutions serve rather than their theoretical or ideological form. The credibility thesis can be applied to explain, for example, why purported institutional improvements do not take hold as part of structural adjustment programs, while other economies in the developing world deliver growth despite absence of clear and strong market mechanisms such as indisputable private property rights or clearly delineated and registered land tenure. The thesis has been applied to explain the failure and success of institutional reforms for various sectors and property rights, including but not limited to, land, housing, informal housing and slums, natural resources, climate change policy and environmental policy.
According to the credibility thesis, institutional persistence, meaning the survival and change of particular institutions through time is determined by the function of the institution and actors' expectations of the institution to play that function. The Credibility Thesis has put forward “that what ultimately determines the performance of institutions is not their form in terms of formality, privatization, or security, but their spatially and temporally defined function. In different wording, institutional function presides over form; the former can be expressed by its credibility, that is, the perceived social support at a given time and space.” Or, as Pero and Smith phrased “institutional credibility refers to peoples’ acceptance of an institution based on their perceptions of that institutions’ accountability, representation, legitimacy, transparency, fairness and justice.”[3]
In light of the above, the thesis predicts that institutions that persist over time likely are credible, thus functional. If not, they would have changed or gone extinct. This principle holds for whatever form an institution may assume, regardless whether it is formal or informal, public or private, secure or insecure. A typical example is sharecropping, which has been regarded as economically inefficient[4] or "second-best".[5] However, its persistence throughout the ages has challenged this premise,[6] leading others to conclude that it is efficient, thus credible and functional.[7] That credibility has been confirmed in other studies.[8] [9]