Why are the WGI based on subjective measures as opposed to objective indicators?
The views and perceptions of firms and households matter because they make decisions based on them. Households will not use the police if they perceive the police to be corrupt. Firms will not use the courts and opt for informality if they view the benefits of the formal sector as being small. Perceptions-based data are a valuable tool for capturing the realities of governance outcomes “on the ground”, which may be very different from the formal rules “on the books” that can be captured with objective data. In some areas, notably corruption, it is nearly impossible to measure governance in any other way than by relying on the experiences and views of informed respondents. The distinction between “subjective” and “objective” measures of governance and the investment climate is mostly a superficial one, as nearly all such measures rely on judgment and/or legal opinions and experiences of respondents in varying degrees.
