Institutional conformity might help explain regional credit market failures in Italy in terms of
insolvency rate. A credit relation is subject to a certain degree of uncertainty about the
credible commitment of the parties to fulfil the contract
ual obligations. We argue that
conformity to informal institutions of reciprocal cooperation and trust can reduce this degree
of uncertainty and, hence, contract breaches. We support our argument by conducting an
empirical investigation where the regional
density of industrial districts is used as indicator of
institutional conformity. We find lower insolvency rate in regions with higher institutional
conformity. Additionally, we find
higher conformity to informal institutions in regions where
the punishmen
t system reacts quicker to non
-
compliant behaviours, suggesting a
complementary relationship between conformity to informal institutions and lower cost of
punishment. One of the advantages of this indicator consists in the possibility of
addressing
“Ostrom
-
type” policy recommendations to reduce regional credit market failures
