“Beyond Markets and States:
Polycentric Governance of Complex
Economic Systems”
Elinor Ostrom
American Economic Review
June 2010, 100(3): 641 - 672
“A core effort is developing a more general theory of individual
choice that recognizes the central role of trust in coping with social
dilemmas…One size fits all policies are not effective.” p. 642
Agenda:
1.
2.
3.
4.
5.
6.
Polycentric?
MORE types of goods
The nature of man revisited yet again…
MORE types of property rights
Best practices for fostering cooperation
The goal of business….
Polycentric?
Beyond (Between) Markets and States
Businesses – Franchises, Public, Private,
Strategic alliances (auto, technology, food, fashion)
Cooperatives (farming, broadcasting)
Public/private partnerships (development, insurance)
Associations (business districts, natural resources)
Clubs, voluntary groups, campaigns, PTA
MORE types of goods
Secretarial Support
Cath Lab
Insurer & Vendor Contracts
Electronic Medical Record
Example: Who will teach what classes when?
Who? Dean, Registrar, Department Chair, Professor
NOT the College President, Trustees
What? What professor, what class, what room,
What content and location on any given day
Where?
When?
Office, Electronic documents
Web scheduling has increased coordination!
1-year prior, 1 semester prior,
Daily
Why? Allocation of resources
Time and space
How? Negotiation among factions
NOT the same at all schools!
Example: What resources do we need to have a class?
Room
Dynamic
Knowledge
Cleanliness
Are Rational Individuals Helplessly Trapped in Social Dilemmas?
“The classic assumptions about rational individuals…hide the
potentially productive efforts of individuals and groups to organize
and solve social dilemmas…The classic models have been used to
view those who are involved in a prisoner’s dilemma game or other
social dilemmas as always trapped in the situation without
capabilities to change the structure themselves” (p. 648).
The Nature of Man revisited again…
Neoclassical
Economics
“Economic Man”
Transaction Cost
Economics
“Bounded Rationality”
Institutional
Economics
Capacity for Learning
and Collective Action
“…like the US Cavalry in a good Western, the government stands ready to rush to
the rescue whenever the market ‘fails’…Private individuals, in contrast, are
credited with little or no ability to solve collective problems among themselves.
This makes for a distorted view of some important economic and political issues.”
Rober Sugden (1986) quoted in Ostrom (2010) on p. 649
“When boundedly rational individuals do interact over time…they
learn more accurate information about the actions they can take and
the likely actions of other individuals” (p. 659).
“Simply assuming that humans adopt norms, however, is not
sufficient to predict behavior….observed behavior may vary by
context because the perception of the ‘right thing’ would change” (p.
660).
“…the updated theoretical assumptions of learning and normadopting individuals can be used as the foundation for understanding
how individuals may gain increased levels of trust in others, leading
to more cooperation and higher benefits with feedback mechanisms
that reinforce positive or negative learning…” (p. 660).
“Thus, it is not only that individuals adopt norms, but also that the
structure of the situation generates sufficient information about the
likely behavior of others to be trustworthy…” (p. 660).
How do we get people to contribute their best effort to a
common objective?
“In CPR dilemmas where individuals do not know one another, cannot
communicate effectively, and thus cannot develop agreements, norms
and sanctions, aggregate predictions derived from models of rational
individuals in noncooperative games receive substantial support.”
1. Communication is feasible with the full set of participants
2. Reputation of the participants are known
3. High marginal per capita return – stakes and incentives
4. Entry and exit capabilities
5. Longer time horizons
6. Agreed-upon sanctioning capabilities
What is “Cheap Talk”?
“The opportunity for repeated face-to-face communication was extremely
successful in increasing joint returns…Findings…are consistent with…the
impact of face-to-face communication on the capacity of subjects to solve
a variety of social dilemma problems. p. 655
MORE types of property rights
 Access
 Withdrawal
 Management
 Exclusion
 Alienation
Example: What are the rights associated with classrooms
and who has them?
Access
Withdrawal
Management
Exclusion
Alienation
The right to enter the room
Students enrolled in the class, professor, administration (limited)
The right to take things (desks, computer) out of the room
Professor (temporarily), facilities, administration
The right to change the way the room looks and is used
Professor (temporarily), facilities, administration
The right to decide who can enter the room
Registrar, professor, administration
The right to sell (rent) the room and capture the proceeds $$
Board of Trustees delegated to administration & facilities
Try this: client lists, vendor networks, computer servers & software
Best Practices (p. 653)…Applied to Business
1A,B: User and resource boundaries
Allocation of decision rights
2A,B: Congruent & Appropriate
Architecture in the context of the rules of the game.
3:
Collective Choice – participation in making & modifying rules
Management, leadership and corporate culture
4A,B: Monitoring users and resources
Observability and accountability of individuals to outcomes
5,6
Graduated Sanctions & Conflict Resolution Mechanisms
Job descriptions, performance reviews & management
7:
Minimal recognition of rights
Management recognizes employee “rights” to make their own rules
within clearly defined spheres of decision rights.
8:
Nested Enterprises
All decisions are not made by the CEO!
Conclusion
and business
“…a core goal of public policy should ^
be to facilitate the development of
institutions that bring out the best in
humans.”