Sunday, October 03, 2010

Understanding Institutional Diversity: Elinor Ostrom

Elinor Ostrom's Understanding Institutional Diversity presents some of the work that led to her Nobel prize last year. Ostrom has developed new frameworks for analyzing the way people organize to manage shared use of common resources. She seems particularly interested in the interaction between spontaneous orders (whether or not relying on markets) and government systems at different scales. The core of the analysis is a robust grammar for describing how an institution is organized and enforces the rules it intends to impose on participants. The grammar lays out 5 elements to be described in relatively standardized language, which results in descriptions that make it possible to compare disparate institutions. Systematically cataloging their relevant features makes it easier to compare institutions to find out what common features lead to their relative levels of success.

Few of the institutions Ostrom studies are government mandated; most have been around longer than the local government. This means the mechanism they use to enforce adherence to traditions, and adjudicate disputes must rely on something other than the rule of law and police power for its effectiveness. Ostrom shows that there are a variety of approaches, and there's a systematic relationship between membership forms and workable enforcement mechanisms.

The grammar Ostrom presents has five elements: the attributes that qualify someone as a participant in the system; whether actions are permitted, required, or forbidden (may, must, must not); the covered actions; the conditions under which the rules apply; and the consequences of not following the rule. These components can be used to describe rules, norms and shared strategies. Rules have all 5 components, norms specify all but the consequences, and shared strategies are statements that only contain the first three components. When using this framework, you have to be aware that most rules can be rephrased between prohibitions and compulsions without changing their sense. When comparing two institutions, a little care is usually enough to penetrate this surface distinction. For example "Actor X is forbidden to take action Y" could be written as "X must perform a non-Y action" or "X does not have the option of doing Y".

Writing descriptions of a variety of institutions using this consistent format has allowed researchers to catalog the kinds of attributes that are used by long surviving non-governmental institutions and contrast those with the kinds of attributes that governments often rely on. The successful private institutions tend to depend on attributes that reinforce a sense of community and mutual obligation (residence in a locality, paying dues or working in a local organization) rather than ones that are easier to administer in a consistent way and have a surface appearance of fairness (paying for a license, passing a test).

The book is organized in three parts. Part I provides background of the context in which Ostrom writes, and introduces vocabulary and some canonical problems. Much of this content is pulled from earlier papers and doesn't flow seamlessly. Other parts are reviews of now well-known examples and experiments and can be skipped or skimmed if the material seems repetitious. Part II explains the grammar's framework, gives some justification, and shows how it has been applied (by Ostrom and others). This is the meat of the book and rewards careful attention. I thought the presentation was clear and the contents quite valuable. In Part III, Ostrom talks about the implications of the theory and the approach for designing and repairing real world institutions.

This was the first place I got a feel for her own attitudes, and I was pleasantly surprised. Since most of her work has been in the context of common pool resources, and she studies communal or voluntary solutions, I expected her to argue that emergent systems somehow "naturally" resolve the issues. Instead she argues that markets have a crucial role, and that it's important that there be multiple institutions at various aggregation levels so rules and meta-rules can be handled through institutions with different incentives and varying feedback systems.

She seems most averse to solutions imposed by central authorities, since they seldom know enough about local conditions to be able to design systems of reciprocity that will fit with the ways that people interact in different locales. In order for a common pool resource institution to succeed over the long term, the participants have to feel ownership of the resource and of the reward and punishment system so that they'll both follow and enforce the rules. If someone else is responsible for enforcement, then the people with the most knowledge of local activities won't be watching one another carefully, and they'll find ways to shirk when times get tough. If they're watching one another, they'll assume they're being watched, and will be much more likely to follow the rules.

I've read other books that talk about how people solve problems in the absence of law and government, but this is the first to present a framework for analyzing existing approaches. The framework doesn't give the answers, but Ostrom's work has allowed her to look at many different approaches that have been taken around the world, and to systematically compare them to see what works and what doesn't. Her conclusions should be studied widely.

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