What is the best way to limit the use of natural or man-made resources so as to ensure their long-term economic viability? This is the question addressed in Elinor Ostrom’s book “Governing the Commons”. In this book, Ostrom describes the use and sharing of valuable resources by groups and the various models used in describing the limitations of this usage.
Common Pool Resources
A common pool resource is a natural or man made resource system that is sufficiently large as to make it costly to exclude potential beneficiaries. CPR resource units are subtractable, meaning when a resource is used it is subtracted from the pool.
There are three dominant models that currently contribute to analysis of the commons. They are the tragedy of the commons, the prisoner’s dilemma, and the logic of collective action.
Garrett Hardin describes the tragedy of the commons as when ‘each person is locked into a system that compels them to increase their ‘herd’ without limit - in a world that is limited. Ruin is the destination toward which all men rush, each pursuing in their own best interest in a society that believes in the freedom of the commons’.
The prisoner’s dilemma is a noncooperative game in which each player is always better off choosing to betray the other player, regardless of what the other player chooses.
Mancur Olsen within the book ‘The Logic of Collective Action‘ says that “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.”
Self Organized Model
Elinor Ostrom says “what is missing from the [current models] is a theory of collective action whereby a group of principals can organize themselves voluntarily to retain the residuals of their own efforts.” Most law firms [and] cooperatives are obvious examples of this.
Within a self-organized CPR model, the three major player types are:
Appropriators, which withdraw resource units from the resource system
Providers, who arrange for the provision of a CPR
And Producers, which is any individual who actually constructs, repairs, or takes actions that ensure the long-term sustenance of the resource system itself.
The three types of rules that are analyzed using the CPR model are:
Operation rules, which affect the day to day decisions made by the appropriators on resource withdrawal and monitoring
Collective choice rules, which are used by appropriators, officials, or external authorities in making the operational rules
And Constitutional rules, which are the rules that govern who or what is eligible to craft the collective choice rules.
The biggest problem with the current models is the inability to account for some of the empirically observed self organized groups such as the fishery in Alayna, Turkey. The current models lend themselves to being used as metaphors in policy prescriptions which oversimplifies the institution being prescribed without regard to how its agents are chosen or monitored. The current models are predictive of special cases such as large scale CPRs with little communication between agents, but do not lend themselves well to small-scale CPRs with high amounts of communication between agents.
The self organized model has to deal with measuring three problems that are more easily accounted for in the other current models. These are the problem of supply, the problem of commitment, and the problem of monitoring. Creating and choosing a set of rules is costly, and constitutes a ‘collective dilemma’. The problem of supply is the problem of how a new institution, such as the set of constitutional and collective choice rules that govern a self organized group, arise in the first place. The problem of commitment is the problem of how a self-organized group will be incentivized to commit to whatever operational rules they agree to, without an external enforcer. Lastly, given that monitoring is costly, the problem of mutual monitoring is how a self organized group incentivizes monitoring and disincentivizes free-riders.
The current models point towards policy solutions that include external authorities. These authorities come in two forms: The state and the firm. The theory of the state describes a ruler who has a monopoly on the use of force, and can use coercion as the fundamental mechanism to organize a diversity of human activities that will produce collective benefits. The theory of the firm describes an entrepreneur who recognizes an opportunity to increase the return that can be achieved when individuals are potentially involved in an interdependent relationship. The entrepreneur then creates a system of contracts for agents who freely enter into the relationship. Because both the firm and the state retain the residuals of the collective action, they are incentivized to punish nonconformance. Both the theory of the firm and of the state have shown success in managing large scale CPRs.
The self-organized model allows for policy solutions that facilitate self organized, self governed institutions. These solutions have been shown to exist as long enduring, small scale CPR institutions.
Elinor Ostrom speculates that there are 8 design principles that come into play when forming a CPR institution. They are:
1. Clearly defined boundaries
2. Compatibility between appropriation and provision rules and the local conditions
3. Collective choice arrangements
5. Graduated sanctions
7. Conflict resolution mechanisms
7. Recognition of rights to organize
8. Nested enterprises
Elinor Ostrom says that “When models that assume no communication and no capacity to change rules are applied to the smaller-scale CPRs, they are applied out of their rage. Applying models out of range can produce more harm than good. Public policies based on the notion that all CPR appropriators are helpless and must have rules imposed on them can destroy institutional capital that has been accumulated during years of experience. The appropriators studied in this book transformed the structures they faced, moving from a structure in which a set of unorganized individuals made independent decisions about using a CPR that yielded scarce resource units to a structure in which a set of organized individuals made decisions in a sequential, contingent, or frequency-dependent manner”.
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