Some opening claims from Ostrom:

“Neither the state nor the market is uniformly successful in enabling individuals to sustain long-term, productive use of natural resource systems.

Further, communities of individuals have relied on institutions resembling neither the state nor the market to govern some resource systems wiht reasonable degrees of success over long periods of time.

Ostrom starts by discussing three influential models that are used to motivate the need for state or market solutions for governing the commons.

  • Tragedy of the Commons (Hardin): well known metaphor – if commons are free to use, individuals pursuing their own interests will lead to “over-grazing” / depletion of the common resource. Metaphor applied to many situations (overpopulation, famine).
  • Prisoner’s Dilemma: Formalization of Hardin. Both defect leads to bad outcome but is equilibrium. INdividually rational strategies lead to collectively irrational outcomes.
  • Logic of Collective Action (Olson): “The difficulty of getting individuals to pursue their joint welfare, as constrasted to individual welfare”.
    • From Olson: “unless the number of individuals is quite small, or unless there is coercion or some other special device to make individuals act in their common interest, rational, self-interested individuals will not act to achieve their common or group interests
    • Mainly about free-rider problem — if you can’t exclude me from the benefits once they are there, why should I contribute in the first place?

These models are interesting and powerful because they capture imnportant aspects of many different problems that occur in diverse settings in all parts of the world. But, what is the problem with these models according to Ostrom?

Basically: the constraints that are assumed to be fixed in the model are taken on faith as being fixed in real life (unless external authorities change them).

  • The prisoners are “trapped” in their game, with no ability to reconfigure the payoffs or constraints etc.
  • But in reality, other possibilities abound. Individuals or communities can change their constraints, or build their own institutions to avoid the “tragic” outcomes.

In practice, these “tragedy” models are typically used to motivate one of two possible policy prescriptions:

  1. Leviathan as the ‘only’ way”: i.e. if rational self interest inevitably destroys resources, then need strong central government to intervene and manage the resources.
    • Retort: but this assumes the government has accurate information, monitory and can sanction reliably.
    • In practice, central gov could make many errors. Simple model shows that if government has incomplete information, can still get prisoners dilemma outcome but the payoffs are even worse in equilibrium .
  2. Privatization as the ‘only’ way”: i.e. we need private property rights so that the costs of “grazing” are fully internalized.
    • Retort is only partial here? There are practical challenges if the common resource is not homogenous, or there is variance in outcomes. Also in some cases it might be difficult to establish property rights. What does it mean to have partial property right to a fishing area etc.

Regardless of these possibilities, Ostrom’s main point is that these two options are not the only option. When you look at the world, there are many different solutions to many variants of the problem of common pool resource management. In general, “getting the institutions right” is a “difficult, time-consuming, conflict-invoking process” that “requires reliable information about time and place variables as well as broad repertoire of culturally acceptable rules”.

The punchline: individual are not always caught in an inevitable “tragedy”; but the ability to escape varies from situation to situation. Goal is to learn: why do some efforts fail while others succeed?

Considering the full breadth of isntitutional solutions, Ostrom finds that:

Institutions are rarely either private or public - “the market” or “the state.” Many successfull CPR [Common Pool Resource] institutions are rich mixtures of “private-like” and “public-like” institutions defying classification in a sterile dichotomy.

Ostrom gives a nice empirical example of an institution like this from fisheries in Turkey. Here is the idea:

  • Fisherman separate all the fishing spots into areas and agree to take turns in each area over course of the season.
  • Monitoring and enforcing is accomplished by the fishers themselves, and incentives are aligned because:
    • Whoever has the “best” fishing spot today is going to be there, so if someone else tries to cheat and go there, they will be detected
    • Everyone else will support the rights of the person who is supposed to be there, so that they get same benefit when it’s their turn

This arrangement is kind of like a property rights system but not exactly — e.g. it involves breaking down resources into chunks; but then these are collectively managed / shared rather than privately owned.

Also, it is kind of like a centralized solution, but enforcement is just done by the fishers rather than some central agent. Ostrom claims that central gov officials could not have easily crafted such a set of rules without a high cost of e.g. assigning a full time staff to work in the area etc.

So it’s neither fully public nor fully private, but rather something in between.

But local solutions don’t always work. Why? Some possibilities:

  • Internal factors to a given group such at their ability to commnicate, develop trust, share a sense of a common future; blocking by powerful individuals.
  • External factors such as outside authorities who block local solution-making; rapid change that there is no time to adapt to.

Other Readings

We also read and discussed:

  • Hayek’s “The Use of Knowledge in Society”, and
  • A useful summary of some of Jane Jacobs’ work that is here

Notes from Class Discussion

  • Interesting discussion of the role of (local?) tacit knowledge of “how to do things” that is alluded to in Hayek, but otherwise maybe not discussed too much. I.e. controlling for inputs and the productive technology available, what is the productivity residual, and how much of it is explained by individuals e.g. “having experience” or “knowing how best to do things” etc. To what extent is this kind of knowledge fundamentally non-transferrable?
    • This is something that in principle could be (maybe has been) investigated empirically? I think maybe some of the local aggregation literature points to things like this? Should look at it more.
    • Cultural / institutional analogues of this?
  • Some comments about how Hayek’s assumptions about what is possible with planning and information aggregation look different from our current vantage with modern information & surveillance technologies.
  • Interesting discussion on why Jacobs prefers the “city” (or city-region) scale in particular vs. something larger/smaller or vs. something less geographically-constrained (the “network state”).
    • Something like: the smallest diversified / sustainable economic unit?
    • Extent of efficiency/complementarity losses from geographic localization?
  • Exchange rates vs. tariffs for import / export policy.