Elinor Ostrom and Neighborhood Governance

nobel_lin_ostromToday the Nobel Prize in Economics was awarded to Elinor Ostrom, making her the first woman to earn the distinction. Ostrom, who holds a Ph.D. in political science from UCLA, shares the award with Oliver E. Williamson. Both were recognized for their contributions to research in non-market transactions.

From the prize announcement:

Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes.

Ostrom is most notable for her work related to collective action and common pool resources. In contradiction to the Tragedy of the Commons hypothesis developed by Garrett Hardin, she notes that informal social institutions can arise to maintain pooled resources successfully over time. Ostrom has focused on examples of people creating systems for sustainable natural resource management with the ecosystems that they depend on such as forests and fisheries.

Although Ostrom studied political science, she has made immense contributions to public choice theory. Her work has focused on communal natural resource management; however, Ostrom has also applied her insights into successful self-governance of many types of collective goods, including residences. In a 2003 interview with Paul Dragos Aligica she uses the example of the collective ownership rights of condominiums as a successful case of managing a collective good, especially compared to some failed public housing projects where residents do not have an ownership stake.

While the idea of a top down authority to manage neighborhood affairs may sound more methodical and efficient than allowing spontaneous order and properly aligned incentives to direct common resource management, Ostrom’s work suggests that Robert Nelson’s policy prescription of Residential Improvement Districts may go much further toward optimal neighborhood governance than top-down city planning authorities.

Here, Peter Boettke provides a brief analysis of the importance of Ostrom’s work in mainline economics.