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his 2000 seminal paper outlined several levels of institutions, defining timeframes within which they change. [2] In his four-level framework there are: cultural institutions that change over decades and centuries; institutions for social interaction that change over decades; institutions that set up economic and political frameworks that can change within a decade; and finally institutions that guide specific transactions among firms and individuals that change continuously. As Williamson notes in his analysis, however, even though we have acquired much knowledge about different institutional structures, the 'why' of institutional change is still rarely fully understood.

Trying to gain a better grip on the process of institutional change, another Nobel Prize winning economist Douglass North took a closer look at how institutions impact economic development in his Understanding the Process of Economic Change book. He concludes that a common cultural heritage is an integral part of countries' institutional structure as it provides a common framework for decision-making on the individual level. Most importantly, in talking about a common framework of reference for reform, he notes the importance of cognition - how humans understand, learn, and think determines the choices they make and, as a result, how institutions change over time.

This problem manifests itself at all stages of development. For instance, while talking about democratic governance it is important to consider whether people have the same frameworks of reference - whether they understand 'democracy' in the same manner, whether they understand 'governance' in the same manner, and whether the concept of democratic governance means the same. For instance, in Russian and many other languages the word for governance and management is the same and technically there would be little difference between saying 'democratic governance' and 'democratic management,' although the two concepts are worlds apart in their meaning.

In this regard, successful institutional reforms require common frameworks of reference on the most basic of levels. Otherwise reformers run into the danger of even well-intentioned efforts producing negative results. Consider working on informal sector issues. Traditionally, the informal sector is defined as economic activities taking place outside of the formal economy - for example, vendors selling goods on the street without obtaining registration permit or without paying taxes. These activities are extralegal as opposed to illegal, criminal activities and have different root sources. Yet some people erroneously equate the informal sector with illegal and criminal activities such as drug and weapons smuggling or the trafficking of humans. Thus, one can image the gap that would arise in trying to develop an informal sector reform program to include the formalization of legitimate economic activities if it is perceived as something criminal.

There are a number of such examples and they all underscore that cognitive perceptions are often underrated in their importance in international development. The approach taken frequently is to transfer a set of policies or institutional structures from one country to another in hope that they would work just as well in a host country, despite the lip service paid to the contrary. The reason such transfers often fail is that people use different framework of referenc