In this paper an institutional policy approach is outlined that interprets rural development as a problem of public goods provision. It is argued that rural development policy should focus on the establishment of institutional arrangements that provide rural public goods effectively. Incentive structures that lead to the underprovision of public goods are studied in a simple game-theoretic model. Market, state, and community as three institutional alternatives for solving this incentive problem are then analysed and their strengths and weaknesses discussed. Based on recent fieldwork, it is shown how these institutions interact to achieve rural development in three rural Polish regions. It is concluded that, in order to achieve rural development goals, a locally adapted strategy to utilise complementarities among the three approaches is needed. Further success factors include the availability of leader personalities, the responsiveness of government to local needs, and the organisational efficiency of local initiatives.