Pitfalls to Avoid when Measuring the Institutional Environment: Is ‘Doing Business’ Damaging Business?

Over recent years, both governments and international aid organizations have been devoting large amounts of resources to 'simplifying' the procedures for setting up and formalizing firms. Many of these actions have focused on reducing the initial costs of setting up the firm, disregarding the more important role of business registers as a source of reliable information for judges, government departments and, above all, other firms. This reliable information is essential for reducing transaction costs in future dealings with all sorts of economic agents, both public and private. The priorities of reform policies should therefore be thoroughly reviewed, stressing the value of the legal institutions rather than trivializing them as is often the case.