Fostering Civil Society to Build Institutions: Why and When

We revisit the ubiquitous claim that aiding civil society improves institutional outcomes. In our model, a vibrant civil society initiates public debate in a reform process that would otherwise be dominated by partisan interest groups and politicians. By altering the incentives of interest groups submitting institutional reforms, civil society involvement sometimes solves adverse selection problems that arise because interest groups are better informed than politicians. Because aid increases the cost to the politician of excluding civil society, it affects institution-building. We show that the welfare implications of fostering civil society critically depend on the specifics of local politics, thereby casting new light on the experience of civil society aid in post-communist and developing countries. Our analysis uncovers a particularly disturbing instance of the tragedy that aid can be counter-productive where institutions are poor. An empirical application shows how the impact of civil society aid varies with the level of democracy.