Great Write-Up of Elinor Ostrom’s Work

October 28, 2009

John Stossel provides the best write-up for lay people of Elinor Ostrom’s work that I’ve read so far in his column today, Self Governance Works.  Elinor shared the Nobel Prize in Economics this year.

If I take fish from a common fishing area, I benefit completely from those fish. But if I make an investment to increase the future number of fish, others benefit, too. So why should I risk making the investment? I’ll wait for others to do it. But everyone else faces the same free-rider incentive. So we end up with a depleted resource and what Garrett Harden called “the tragedy of the commons.”

Except, says Ostrom, we often don’t. There is also an “opportunity of the commons.” While most politicians conclude that, depending on the resource, efficient management requires either privatization or government ownership, Ostrom finds examples of a third way: “self-organizing forms of collective action,” as she put it in an interview a few years ago. Her message is to be wary of government promises.

She has studied, for example, self-governing irrigation systems in Nepal and found successes never anticipated in the textbooks. “Irrigation systems built and governed by the farmers themselves are on average in better repair, deliver more water, and have higher agricultural productivity than those provided and managed by a government agency. … (F)armers craft their own rules, which frequently offset the perverse incentives they face in their particular physical and cultural settings. These rules may be almost invisible to outsiders. …”

“These rules may be almost invisible to outsiders…” reminds me of Adam Smith’s Invisible Hand.  The Invisible Hand is why we do what we do.  Smith wrote more about this subject in his Theory of Moral Sentiments.  In addition to economic incentives, our actions are influenced by prudence, propriety, benevolence and justice.   These four governors of behavior are under appreciated.  I consider economic incentives along with prudence, propriety, benevolence and justice to be the five fingers of the invisible hand.

Government intervention can screw up economic incentives and it can also screw up the other four fingers.  Something a German lady told me comes to mind.  She said that while East Germany was freed 20 years ago, the culture of a heavy handed slave master statist government is still there.  The people are rude.  They live to meet the codified rules and not much else.  The government rules replaced a person’s sense of prudence, propriety, benevolence and justice.  DMV anyone?

I also love this passage: “While most politicians conclude that, depending on the resource, efficient management requires either privatization or government ownership, Ostrom finds examples of a third way.”

By examples, he means real world examples.  Real world examples are all around us, yet I find that those examples are often under appreciated by people who box themselves into theoretical confines.   I’m the Elinor Ostrom of my workplace.  Whenever we have a grand new idea, I look for real world examples that are similar.  It is darned difficult to get people to accept those real world examples.  It’s also darned difficult to get those people to admit that they should have more carefully considered those real world examples when they get similar results.

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