The article raises the issue of the role of institutions in drafting and implementing of the 1998 local self-government reform in Poland. The author assumes that for the smooth operation of new formal institutions, e.g. those regulating the functioning of poviats, itis required to be complementary to the already existing informal institutions, eg. self-governing traditions or mental models. In a post-communist state, the population cannot see the need for participation in the process of managing a local self-government unit. Consequently, statutory provisions providing for such a co-operation remain inapplicable. Without a grass-root level public involvement a self-government is unable to operate effectively. Hence, there is an institutional imbalance between formal mechanisms which promote self-governing and informal institutions opposed to it. Institutions are seen as the rules of the game. In addition, the problem of law-making was addressed from the point of view of effective functioning of the socio-economic system. The Author claims that for the law to be effective it must be enacted by way of formalisation of customs, traditions and behaviour patterns existing in the society. Then, on example of the poviat and voivodship level of local self-government the Author analyses the institutions opposed to their sovereignty including, inter alia, the system of financing new self-government units. The article concludes with recommendations concerning provision of effective institutions constituting the local self-government system.