Tuesday, June 12, 2012

Ostrom's central idea




Elinor Ostrom was a very important contributor to the theory of public rationality and the institutions that underlie cooperation, and she was most deserving of the recognition that accompanied her receipt of the Nobel Prize in Economics in 2009.  Her passing today is a sad loss for the academic world.

Her key contributions were included in Governing the Commons: The Evolution of Institutions for Collective Action, a masterful book that presents a new theoretical framework and body of empirical evidence for conceiving of the ways in which human communities can handle common property resources -- forests, fishing grounds, grazing areas, water supplies. Anyone interested in the ways that collective action works in practice will want to read the book. (See also Baden and Noonan, Managing the Commons, Second Edition for an important set of perspectives on "managing the commons" and solving common property resource problems.)

Rational choice theory has been unfriendly to the idea that communities can self-regulate when it comes to public goods and public harms.  Garrett Hardin offered the theory of the "tragedy of the commons", in which he argues that rational egoists will inevitably overuse a common resource. And Mancur Olson offered similar arguments about the feasibility of collective action in an extended group in The Logic of Collective Action: Public Goods and the Theory of Groups. Against these views, Ostrom and her research collaborators demonstrated that human communities have actually created a number of informal institutional complexes for regulating access to common resources that succeed in creating a stable balance between use and resource renewal.

Here is how Ostrom casts the problem in Governing the Commons:

The term “common-pool resource” refers to a natural or man-made resource system that is sufficiently large as to make it costly (but not impossible) to exclude potential beneficiaries from obtaining benefits from its use. (30)
Instead of presuming that the individuals sharing a commons are inevitably caught in a trap from which they cannot escape, I argue that the capacity of individuals to extricate themselves from various types of dilemma situations varies from situation to situation. The cases to be discussed in this book illustrate both successful and unsuccessful efforts to escape tragic outcomes. (14; kl 306)
Institutions are rarely either private or public -- "the market" or "the state." Many successful CPR intitutions are rich mixtures of "private-like" and "public-like" institutions defying classification in a sterile dichotomy. By "successful," I mean institutions that enable individuals to achieve productive outcomes in situations where temptations to free-ride and shirk are ever present. A competitive market -- the epitome of private institutions -- is itself a public good. (14; kl 311)
Ostrom demonstrated, both theoretically and empirically, that legal regulation is not the only possible solution to public goods problems. Instead she documents community-based solutions to common property resource problems that have proved successful over multiple generations. These are quasi-voluntary arrangements through which a community of users (fishers, grazers, irrigators) are able to manage the resource collectively and control violators, in such a way as to preserve the resource over time. And she points out that these institutions can be self-maintaining, in that participants have an incentive to watch out for cheaters and shirkers.  In describing the Alanya inshore fishing system in detail she writes, "The process of monitoring and enforcing the system is, however, accomplished by the fishers themselves as a by-product of the incentive created by the rotation system" (19-20; kl 378).

Given that common property resource problems are ubiquitous, her policy recommendation are sensible ones:

An important challenge facing policy scientists is to develop theories of human organization based on realistic assessment of human capabilities and limitations in dealing with a variety of situations that initially share some or all aspects of a tragedy of the commons. (23; kl 436)
What is missing from the policy analyst's tool kit -- and from the set of accepted, well-developed theories of human organization -- is an adequately specified theory of collective action whereby a group of principals can organize themselves voluntarily to retain the residuals of their own efforts. Examples of self-organized enterprises abound. (24; kl 449)
Essentially her research comes down to this point: There are multiple possible property systems through which access to natural resources can be mediated. A simple Lockean theory of private property holds that all goods have individual private owners. It is possible, however, to conceive of forms of “social property” or community property through which at least some assets are held in common, and for which there are fair and well-defined procedures for providing rights of access to the use and enjoyment of the social property.

As Ostrom demonstrated in depth, there are socially feasible arrangements in which a “common property resource” such as a fish stock is exploited by a number of independent producers within the context of a stable community.  In this instance we have a combination of private property (nets and boats) and social property (the waterway and fish stock), and Ostrom documents several different sets of social rules that establish the terms of access and use that individuals will have to the common property resource.

There is extensive debate over the economic efficiency or viability of social property arrangements such as these. Concerning fisheries and traditional practices of forestry, for example, there is the familiar argument that rationally induced free-riding will eventually undermine the community-based rules of use. The point here not that social property regimes are superior, but rather that they are possible. And Ostrom's research illustrates a great variety of common-property resource regimes that appear to be efficient and stable.  It is therefore a matter of public debate which particular rules and institutions ought to govern the use of property. And there may be something in this finding that provides new ways of thinking about economic arrangements in the twenty-first century as well.

(I had an interesting exchange with Ostrom on the occasion of her receiving an honorary degree from the University of Michigan in 2006. I raised the topic of agriculture and food within the world economy and referred to a continuing debate I'd been having with my daughter about traditional farming versus largescale industrial agriculture.  My argument was that traditional farming was not productive enough to feed the world's population, and my daughter's view was that industrial agriculture is unsustainable and destructive of existing rural communities.  I asked Ostrom about her opinion.  Her response was: "you are both right." In hindsight, after rereading Governing the Commons, I'm inclined to interpret her response as expressing the idea that solutions to our large global problems need to be mixed solutions. Her work on self-governing community-based systems for making use of resources suggests that she would have some sympathy for the continuing significance of traditional farming systems within the larger context of the world agriculture system. But at the same time, she was always insistent that we need to be realistic about the assumptions about behavior that underly the solutions we recommend.)