Tag Archives: Elinor Ostrom

Contribute to a Public Good; Organize a Screening of “Honor Flight”

Most undergraduate economics majors learn that humans lack an incentive to contribute to so-called “public goods.” Experiments in the lab, however, show that this prediction of eliminatory theory doesn’t always describe real human behavior. Nor, as the late Elinor Ostrom showed, does it describe human behavior outside the lab. In the real world, it turns out that humans often do contribute to public goods.

These contributions are often facilitated by creative institutional arrangements. Kickstarter, for example, has allowed 2.5 million people to contribute over $350 million to creative projects. This year, people will voluntarily contribute more to the arts through Kickstarter than they will through the taxpayer-funded National Endowment for the Arts.

But let’s set aside numbers and theory. If you’d like to see a deeply moving example of how free people can come together to solve problems and do absolutely amazing things, see this movie.

I saw it this week and I can attest that it is one of the most powerful and moving films I have ever seen.

If you live in the Washington, D.C. area, you will have one more chance to see it this Friday night. If you live outside, D.C., go here to see if it is screening in your area. Now here is the cool part, if it isn’t playing in your area, an innovative service called Tugg, allows you to organize a screening in your own town (creative institutional arrangement, that).

So prove elementary economics wrong. Contribute to the public good and organize a screening. I guarantee you will find it deeply personally rewarding.

A Congressional Cookie Jar with Oak Tree Roots: The Economic Development Administration

David Bier of the Competitive Enterprise Institute makes the case in a recent paper for the abolition of the Economic Development Administration. The history of the EDA is tied into the programs of the Great Society which spawned many fiscal and programmatic connections between federal, state and local agencies with the ostensible aim of spurring local economic improvement (e.g.The Community Development Block Grant). Fifty years on and these programs haven’t lived up to the grandiose mission statements of their architects. The EDA is part of the framework through which stimulus dollars flowed and Bier’s article underscores the key objections to the application of federal dollars to local economic development.

Interestingly, the EDA has been the subject of several academic studies over the years. The classic public administration book, Implementation, by Jeffrey L. Pressman and Aaron Wildavsky undertook an early case study of the EDA in Oakland, California with its inaugural goal of hiring long-term unemployed minorities. They conclude that while advocates had “great expectations” the program produced meager results with impulsive project choices and cost overruns. The cause, the authors postulated, was a delay in implementation and cumbersome bureaucracy.

Pressman and Wildavsky seem to have documented a familiar tale of public choice theory: the malincentives present in bureaucracies and tendency toward inefficiency. Their classic book on programmatic breakdown has touched off another debate recently in the literature centered around the question, “What ever happened to the study of policy implementation?” An intellectual dead-end was encountered according to deLeon and deLeon which can be revitalized by considering policy implementation not from the top-down but from the ground-up.

Pressman and Wildavsky sliced into their analysis in keeping with the dominant theories of the time. They view the EDA in a top-down fashion – as a single federal programmatic entity acting on subordinate levels of state and local government. Since their 1973 classic, advances made by Vincent and Elinor Ostrom and others point to the fruitfulness of thinking in terms of polycentric rather than monocentric orders. That is, to consider policies in horizontal instead of vertical terms. Map out the multiple decision nodes that connect government, marketplace and community.

B. Guy Peters in his article, Implementation Structures as Institutions, notes that in the last decade, the public administration literature now strives to make just such connections in understanding how policies are implemented. It’s an important advance which allows for a more complex and nuanced picture of the effects of programs. Such analysis may help answer one perennial question: how is it that small-budget, experimental programs inspired by mid-century economic theories grow deep roots and resist any kind of reform, alteration or pruning for generations?

When we consider federal spending programs and trace their effects we often see the fleeting connections and feel a sense of unease. A former EDA administrator calls the program, “A Congressional Cookie Jar.” From his vantage point the program is an expense account for politicians to sprinkle federal dollars on their districts. But as EDA grants are scattered among municipal governments, what else happens along the way? How do constituencies coalesce? Who benefits and who loses? Where do the dollars go and how are connections forged between private, non-profit and public sector actors. Metaphorically speaking, how did a single-shot grant in the mid-1960s become an oak forest?

Nobel Laureates on Local Governance and the Importance of the Constitution

Last night, the Mercatus Center, among other organizations, hosted a panel discussion on James Buchanan’s contributions to social philosophy and political economy. In addition to Buchanan (the 1986 Nobel laureate in economics), there were two other economic Nobelists on the panel: Elinor Ostrom (2009 Laureate) and Amartya Sen (1998 Laureate).

Professor Ostrom’s closing remarks (at around 32:00 in the video) are particularly germane to this blog. She quoted James Buchanan and Gordon Tullock in their seminal work, The Calculus of Consent:

“Both the decentralization and size factors suggest that, when possible, collective activity should be organized in small rather than large political units. Organization in large units may be justified only by the overwhelming importance of the externality that remains after localized and decentralized collectivization.” (pp. 114-15).

Ostrom then declared:

Boy, if I could get that up on the wall of every university I visit and get it into the textbooks on public policy and urban governance, I would be thrilled. 

Then, she addressed the importance of a constitution:

But somehow, we have forgotten this core idea…A lot of people and students come in and, when asked “what is democracy,” they say, “It is voting; democracy is defined by voting for officials, not by people being engaged in constitutional decision making.” And people have lost the idea of a constitution. Some of my students come in and think “well that’s just a piece of paper written by dead, old white men at a national level.” The idea that citizens would craft their own rules and really struggle with how to get things organized at a local community as well as all the way up, has been lost.

I think that Professor Ostrom’s diagnosis is spot-on. Many—students, journalists, and especially policymakers—almost worship the notion of voting (see professor Holcomb’s From Liberty to Democracy for a nice treatment of the evolution of this idea). To them, if 50 percent + 1 favor X, then X is by definition correct.

And note that this cuts across the political spectrum. On the left, you have a lot of people who are willing to say that if a majority thinks that smoking ought to be banned—even on private property—then it ought to be banned. The right is no stranger to this notion either. A lot of conservatives are willing to say that if the majority favors banning certain bedroom activities, then those activities should be banned. And if a court steps in to overturn the ban, then it is automatically a case of judicial activism (irrespective of what the law does or does not actually say). 

In contrast, Buchanan emphasized the “external costs imposed by collective action.” These are all the burdens that can be imposed on an individual as a result of collective action. Mundane examples are regulation or taxation. But, sadly, horrific examples abound: slavery, subjugation, and racial or sexual discrimination have all been imposed by majority vote at one time or another. In other words, Buchanan took seriously the possibility that democracy might impose costs on individuals.

The founding fathers took this notion seriously too. As Madison put it, “I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations.” And as Franklin is purported to have said (though I understand that he may not have actually said this): “Democracy is two wolves and a lamb voting on what to have for lunch.” 

If democracy can lead to bad outcomes, the solution is not monarchy or despotism. According to Buchanan and Madison, the solution is a Constitution: a document that carefully circumscribes the powers granted to the majority. Yes, the majority rules, but under a constitution, they only possess those enumerated powers that are granted to them (ideally, according to Buchanan, these powers would be granted by unanimous consent). Moreover, powers are distributed across different political units (branches) and levels (federal and state). By organizing collective action in small, dispersed political units, Buchanan argued, we can diminish the expected costs that individuals might bear.

Our particular constitution may, indeed, have been written by a bunch of old, dead white guys. But that hardly diminishes the value of a written constitution. Nor does it mean that it should become a “living, breathing, document,” as some would have it. After all, if its meaning changes with whatever gloss the majority chooses to put on it in any particular time, then what is the purpose of a written constitution anyway?

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.