Institutions and Economic Development on Native American Lands

Abstract

Previous economic scholarship has demonstrated an institutional basis for Native American poverty. Poverty is blamed largely on formal governance structures, especially inefficient property-rights regimes and excessive bureaucratic governance. Although previous scholarship has emphasized the role of formal institutions, market-process theory as it relates to Native American economies has been neglected in this literature. This paper attempts to fill the gap by bringing market-process theory and entrepreneurship into the broader discussion of the institutional effects on Native American economic development. Economic growth and development are the direct results of the competitive entrepreneurial market process, and the quality of institutions that govern social action is the ultimate determinant of individuals’ willingness to engage in entrepreneurial activity. Institutions impede entrepreneurship, the market process, and economic development on Native American reservations through three overarching channels: (1) the federal land trust, (2) a dual federal–tribal bureaucracy, and (3) legal and political uncertainty. Those channels generally raise barriers to mutually beneficial exchange, entrepreneurship, and innovation. In particular, they generally increase transaction costs, rent seeking, and bureaucratic delay, which impede many Native Americans from engaging in private enterprise.

Keywords: Economic development, institutions, Native Americans, reservations, entrepreneurship