# Beyond Markets and States -- Elinor Ostrom's Nobel Prize Lecture (JMP notes)
* Beyond markets and states. (I might choose to say "Finding and Developing our Commons Among Markets and States") * Moving beyond simple and pessimistic views. * Polycentric governance of complex economic systems -Efforts to understand complex systems * Polycentric Water and Police Industries * Institutional Analysis and Development (IAD)Framework o Theory of human behavior and choice matched with context • Central role of TRUST in coping with dilemmas
# Lessons from Studying Complex Systems o Rules need to fit social-ecological context • One rule that can work everywhere is ridiculous o Polycentric systems may enable a fit between human (day-to-day) action situations and nested ecological systems o Panaceas are dysfunctional o Complex human systems were considered chaotic and therefore bad and to be simplified in the 1960s o Eliminating the nested parts and creating large aggregates was the professional recommendation. This has continued to the present time. There was an irrational belief that the numerous governance divisions and colors on maps was prima facie evidence of dysfunctional chaos and should be reduced by aggregating control and governance at larger and larger levels: small school districts and small townships should abolish by aggregating into larger governance areas and structures. • JMP NOTE: We must stop getting rid of the small entities and reverse course by encouraging the emergence (design?) of more local and therefore smaller parts/institutions along with matching rules and relationships--this is called "nesting" relationships. It is the new rules and relationships that are needed, not the destruction of the local relationships that are embodied in local institutions. The implications and potential wisdom of this knowledge if it were enacted is a reversal of the regional and national aggregation of hospital and medical systems and the re-localization, reconceptualization within the communities of relevance and trust. This aggregation is done in the interest of the owners and managers of these mega institutions, not in the interest of the communities in need of medical services. o We should match the solution of community problems (governance) to the socio-geographic scale of the problem, and we must avoid creating problem solving (governance) that is too large for the problem context. • We have learned that participation (true citizenship) is absolutely key to solving complex problems and that both relevance and trust are key to participation. The span of relevance and trust should determine the size of the governing entity (ACHs need miniACHs and miniACHs need ANHs (Accountable Neighborhoods of Health) and ANHs need AFH (Accountable Families of Health). • Local entities must become incorporated so that they can contract with other entities to solve problems of scale without giving up the local participatory decisions making by the effected by the problems and solutions. One of the big advantages of this style of governance interrelationship is the ability to exit is preserved. If the contract is not working, you can decide to stop or exit that particular relationship--because it is not working. Ineffective relationships can be changed by the choice of the smallest unit--who was to be a beneficiary in the contract. This arrangement preserves or restores power symmetry in the face of size differences. • Ostrom and her team of researches never once found a case where a large centralized police department outperformed smaller departments serving similar neighborhoods in regard to multiple indicators. This fact may offer relevant insight into ACHs, hospitals, insurance functions, etc. I think what is being aimed at here is the profound difference between efficiency and effectiveness. When our health and wellbeing are at stake I hope that we can elevate effectiveness over efficiency. The unintended and delayed effect of ineffectiveness is increased costs--therefore lower actual efficiency, over time. So once again our national pattern of maximizing short term corporate profit risks undermining a vital public good--the health of our children and ourselves as well as forgoing larger and more sustained financial health for the Purchasers and their chosen MCOs. • That said, Ostrom goes on to point out that they did find considerable economies of scale with certain functions, crime lab, radio dispatching, as examples. Our great challenge is to distill the mix of health services into support functions and direct health care and look for efficiencies in the support functions, not in the direct care. The gold standard for direct services must become effectiveness--as determined by the users, not the providers alone. Finding the "mix" of efficiency and effectiveness (by function) is some of the work in front of us.
# Types of Goods * Private Goods (with subtractability--when you use it it is no longer available for others, like water and money) * Public Goods (difficult to exclude potential beneficiaries) -Peace and security of a community, national defense, knowledge, fire protection, weather forecasts, etc. -The range and scale of public goods are immense. * Common-pool resources (difficult to exclude potential beneficiaries along with subtractability) -Forests, water systems, fisheries, global atmosphere -Our sources of wellbeing and health at a neighborhood and community scale? -The range and scale of common-pool resources are immense. * Toll goods (non subtractability and low cost of exclusion) -Theaters, private clubs, day care centers
# IAD framework (1982) o o Nested set of building blocks • Evaluation Criteria Outcomes (with feedback) (Intentional Stance) • Interactions • Action Situations (Actors in roles taking action toward goals) • Exogenous Variables • Biophysical Conditions • Attributes of Community • Rules-in-Use • The internal structure of an action situation Action Situations are made up of • Potentiality to choose desired outcomes (PURPOSE) and actions toward these outcomes • Net cost and benefits • Positions embodied with • Actors • Actions • And enabled by • Information • Control • Are rational individuals helplessly trapped in social dilemma? Helplessly trapped trying to get a much for themselves form limited pools--survival of the fittest mind set. o Gary Harden's Tragedy of the Commons is widely misinterpreted. o There are contexts when government institutions or private property institutions are optimal solutions to problems. o There are other contexts where groups self-organize common property institutions of a wide variety. o Meta-analysis study of a large number of common pool resource situations around the world produced the finding that local user control out performs distant aggregate control for irrigation-farming and fisheries systems. o Groups that did not know one another and did not communicate were more likely to overuse their resources! Otherwise, they went in a grabbed resource, like Gary Harden's theory predicted. o This is what often happens with remotely controlled institutions like insurance companies and hospital systems. This is a horrific problem due to the inevitable ineffectiveness created and the extractive financing which together deplete the community of health and wealth respectively. o A way out of this dilemma is to co-design the solutions to our problems--with all the stakeholders participating. Perhaps there should also be biases toward localness for effectiveness and aggregation for efficiency. • There are five relevant rights o Property rights o Access rights o Withdrawal o Management o Exclusion o Alienation • Rules o o Seven broad types of rules in the IAD framework Boundary rules (actors and resources) • Over 25 boundary rules were found in one situation Position rules (roles) Choice rules (actions) Information rules Aggregation rules (control, decision making) Scope rules (range of potential outcomes) Payoff rules (cost / benefit) • Looking at the world's experience with self-organizing management ofj common pool resources Ostrom discovered some regularities in the systems that were successful for long periods of time. She called these common regularities "design principles" (HOW TRUST BECOMES SCALABLE). They are: FAIRNESS (TRUSTWORTHY RELATIONSHIPS) Boundaries of users and resources are clear (See #8, Nesting) Congruence between who receives the benefits and pays the costs (Seems fair enough) Flourishing of the community members and its institutions. Users had rights and procedures for making their own rules (ACH and mini-ACH Governance) ENFORCEMENT OF FAIRNESS (TRUSTWORTHY RELATIONSHIPS) Regular monitoring of users and resource conditions ??? 1. Graduated sanctions ??? Business is directed elsewhere. 2. Conflict resolution mechanisms (Use M.C. Jackson's advice in his book) SHARING OF POWER IN FAIRNESS (TRUSTWORTHY RELATIONSHIPS) 3. Minimal (essential) recognition of rights by Government a. (ACH relationships to be negotiated) 0. Nested enterprises a. (1 State-level (ASHs) Enablement, Coordination and Support of 9 Regional ACHs; 9 Regional ACHs (ARHs); 39 County level "Mini-ACHs”, x hundred Community level Accountability, x thousand Neighborhood level Accountability ANHs), x million Family/Individual level Accountability (AFNs).) b. This is polycentric governance for common pool resources or public goods. A brief updated list as developed by Cox, Arnold, and Villamayor-Tomás (2009): 1A. User Boundaries: Clear and locally understood boundaries between legitimate users and nonusers are present. 1B. Resource Boundaries: Clear boundaries that separate specific common-pool resource from a larger social-ecological system are present. 2A. Congruence with Local Conditions: Appropriation and provision rules are congruent with local social and environmental conditions. 2B. Appropriation and Provision: Appropriation rules are congruent with provision rules; the distribution of costs is proportional to the distribution of benefits. 3 Collective-Choice Arrangements: Most individuals affected by a resource regime are authorized to participate in making and modifying its rules. 4A. Monitoring Users: Individuals who are accountable to or are the users monitor the appropriation and provision levels of the users. 4B. Monitoring the Resource: Individuals who are accountable to or are 5. Graduated Sanctions: Sanctions for rule violations start very low but become stronger if a user repeatedly violates a rule. 6. Conflict-Resolution Mechanisms: Rapid, low-cost, local arenas exist for resolving conflicts among users or with officials. 7. Minimal Recognition of Rights: The rights of local users to make their own rules are recognized by the government. 8 .Nested Enterprises: When a common-pool resource is closely connected to a larger social-ecological system, governance activities are organized in multiple nested layers. • Game theory in an experimental lab Theory, mathematical model, and experiment Findings: 22:30 When people made decisions anonymously and there was no communication they did what Gary Harden's Tragedy of the Commons theory predicted. Just like she found in the field, when it was very big and they couldn't communicate, they over harvested. All we had to do was introduce the possibility of face-to-face communication ("cheap talk") and that allowed them to increase cooperation greatly. And then we allowed them to design their own sanctioning system and they went up to ninety percent of optimal, a fantastically optima result. • 23: 13 Field experiments: Field experiments around the world are finding parallel findings. They have studied over 250 irrigation systems in Nepal. They compared systems built by engineers to those very primitive systems build and run by farmers. They found that the farmers were able to grow their crops more efficiently (cost benefit) and get more water to the tail end of the system. Studying forests around the world. Includes forests owned by governments, private organizations and communities. They measure the forests as well as the rules people use and how they organize to manage the forests. Measuring both social and ecological systems. Surprising Findings 25:10 • In sustainable forests around the world, users themselves are active monitors of the level of harvesting occurring in their forests • Users monitoring forest is more important than the type of forest ownership!!! • Recent analyses examine trade-offs and synergies between the level of carbon storage in the forest and their contributions to livelihoods. • Larger forests are more effective in enhancing carbon and livelihoods. • Even stronger when local communities have strong rule-making autonomy and incentives to monitor • Current Developments a. Theory of rational but helpless individuals is not supported. b. Many theorists now working on behavioral theories of the individual • Boundedly rational, but learn through experience • Use heuristics but update their learning overtime • Learn norms and potentially they value benefits to others. This varies by individual. c. Learning to trust others as central to cooperation. You cannot have a large, medium or small governance mechanism over time when people do not trust one another. Micro-situational and broader context affects social dilemmas affects level of trust and cooperation Broader contextual variables Micro-situational variables Learning and norm-adopting individuals Levels of trust that others participants are reciprocators Levels of cooperation Net benefits If the outcomes are bad, then don't cooperate. If the outcomes are good, they see others are cooperating, it is cumulative over time; until someone comes along and doesn't act in a trustworthy way. (This is pretty much the whole deal, people need to co-create rules and roles and monitor for behaviors and results.) Attributes of Micro-situations that affect the level of cooperation Communication is feasible with the full set of participants. When face-to-face communication is possible, participants use facial expressions, physical actions, and the way that words are expressed to judge the trustworthiness of the others involved. Reputations of participants are known. Knowing the past history of other participants, who may not be personally known prior to inter action, increases the likelihood of cooperation. High marginal per capita return (MPCR). When MPCR is high, each participant can know that their own contributions make a bigger difference than with low MPCR and that others are more likely to recognize this relationship. Entry or exit capabilities. If participants can exit a situation at low cost, this gives them an opportunity not to be a sucker and others can recognize that cooperators may leave (and enter other situations) if their cooperation is not reciprocated. Longer time horizon. Participants can anticipate that more could be earned through cooperation over a long time period versus a short time. Agreed-upon sanctioning capabilities. While external sanctions or imposed sanctioning systems may reduce cooperation, when participants themselves agree to a sanctioning system they frequently do not need to use sanctions at a high volume and net benefits can be improved substantially. All factors that increase the likelihood that participants gain trust in others and reduce the probability of being a sucker. It is not just one variable but how these work together. Communication is very important but it is gaining trust that is essential. Set of ten variables identified as impacting the likelihood of users self-organizing: Attributes of the Resource System Size Productivity Predictability Resource Units Extent of mobility Rules Existence of collective-choice rules that the users may adopt authoritatively In order to change their own operational rules Four attributes of users The number The existence of leadership/entrepreneurship Knowledge about the Social-Ecological System (SES) Importance of the SES to the users Building trust in one another and developing institutional rules that are well matched to the ecological systems being used are of central importance for solving social dilemmas. In the broader context: social – ecological systems, a network of colleagues identifying aspects of the broader context that affects micro dash situations and the likelihood of resource sustainability. Reform? Doing better policy. • Resources in good condition have users with long-term interest, who invests in monitoring and building trust. • Many policy analysts and Public officials have not yet absorbed the central lessons. o Government protected areas for private rights are still recommended I saw as THE way to solve these problems. • Our challenge is to improve innovativeness, learning, adapting, trustworthiness, level of cooperation of participants, and achievement of more effective, equitable, and sustainable outcomes at multiple scales. • We must learn how to deal with complexity rather than rejecting it. • Panaceas are not to be recommended! • We need institutions that are small, medium, large, larger…, global. This is the notion of poly-centricity and nesting.