Peter Boettke on Elinor Ostrom, Vincent Ostrom, and the Bloomington School
Nov 30 2009

Peter Boettke of George Mason University and author of Challenging Institutional Analysis and Development: The Bloomington School (co-authored with Paul Dragos Aligica), talks with EconTalk host Russ Roberts about the Bloomington School--the political economy of Elinor Ostrom (2009 Nobel Laureate in Economics), Vincent Ostrom, and their students and colleagues at Indiana University. The discussion begins with the empirical approach of Elinor Ostrom and others who have studied the myriad of ways that actual communities have avoided the tragedy of commons. Boettke emphasizes the distinction between privatization vs. informal norms and cultural rules that prevent overuse. The conversation also looks at urban development and the benefits and costs of multiple municipalities vs. a single, large city. Throughout, Boettke embeds the conversation in the Ostroms' interest in how the citizenry can be self-governing and the challenges of implementing local knowledge.

Bruce Yandle on the Tragedy of the Commons and the Implications for Environmental Regulation
Bruce Yandle of Clemson University and George Mason University's Mercatus Center looks at the tragedy of the commons and the various ways that people have avoided the overuse of resources that are held in common. Examples discussed include fisheries, roads,...
Michael Munger on Cultural Norms
Michael Munger of Duke University talks with EconTalk host Russ Roberts about cultural norms--the subtle signals we send to each other in our daily interactions. Mike, having returned from a four-month stint as a visiting professor in Germany, talks about...
Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Nov 30 2009 at 3:04pm

Where can I find that review Pete wrote with the thick and thin matrix?

Nov 30 2009 at 4:40pm

What a great podcast! It’s a shame it didn’t last longer, but perhaps you could revive the Wednesday extra podcasts like you did for covering The Theory of Moral Sentiments?

It just seems like there’s so much covered today that most listeners — maybe even most econ PhDs — don’t know. Wouldn’t have to be an exegesis of a particular book; a series of jam sessions would work great too.

Nov 30 2009 at 5:02pm

A wonderfully rich podcast full of insights, definitely one for a re-listen later this week.

I can’t but help thinking that we in the free market camp do ourselves no favours in our terminology as ‘free market’ has now developed negative connotations (of exploitation and excess) and also ignores these non-profit based solutions raised by Ostrom.

Framing the free market option as a ‘voluntary’ one (as Russ hints at) avoids both these problems and would also appeal on an intuitive level to many left leaning people who now instantly put the shutters up at the mention of the free market.

After all, who could seriously argue against a voluntary solution (or indeed support the coercive alternative that it implies)?

John Strong
Nov 30 2009 at 7:58pm

Electrifying!!! We’ve been treated to some rich podcasts about the financial crisis lately, but I most love the podcasts like this one that reflect on the DNA of liberalism.

Pete Boettke has thought deeply about the basics and illustrates every thought with a very rich set of experiences. This stuff is so good.

Agnostic wrote> It’s a shame it didn’t last longer, but perhaps you could revive the Wednesday extra podcasts like you did for covering The Theory of Moral Sentiments?

I am in violent agreement with this sentiment. I vote for a 5 podcast series in which Pete Boettke and Russ Roberts reflect at length & deeply on the insights of Hernando de Soto and think tanks like the Institute for Research into Informality (IRIS) founded by the late Mancur Olson, all in the light of the work done by the Bloomberg School.

I know professor Roberts has a lot on his plate. I just want to share my “blue skies” idea. 🙂

Dec 1 2009 at 7:55am

Here is the link to the review where Pete wrote of the thick and thin matrix:

John Strong
Dec 1 2009 at 9:42am

Suggested tangent for a future podcast with Pete:

In one of Karol Boudreaux’s podcasts she indicated that titling programs have achieved mostly good but mixed results (yet another example of a great idea in theory that proves to involve complex local governance issues in practice). She mentions the work of Erica Field of Harvard who showed that titling does not necessarily produce greater access to credit if there are countervailing endogenous obstacles (mistrust of a dysfunctional banking system). But Karol also told an intriguing story of how an (exogenous) intervention by some USAID workers helped transform the Rwandan coffee industry.

Maybe Pete Boettke could talk at more length about his experience with USAID and give it his usual, insightful philosophical spin.

Dec 1 2009 at 9:17pm


This is a great podcast. I am definitely planning on finding out more about the Bloomington School.

I also find that this podcast would be interesting to many modern socialists/leftists who rarely talk about super-state solutions, rather they prefer to talk about ‘community based solutions or small self governing groups.

Dec 1 2009 at 9:25pm

Peter & Russ,

I was thrilled that you mentioned the Balinese agricultural culture. Below is a piece of a speech by Douglas Adam on this. The points he is trying to make are more about people & cultures as evolved, but you could easily replace ‘evolved’ with ’emergent.’ It fits in beautifully with this podcast:

..The one I have in mind at the moment is one that describes the culture and economy of Bali, which is a small, very crowded island that subsists on rice. Now, rice is an incredibly efficient food and you can grow an awful lot in a relatively small space, but it’s hugely labour intensive and requires a lot of very, very precise co-operation amongst the people there, particularly when you have a large population on a small island needing to bring its harvest in. People now looking at the way in which rice agriculture works in Bali are rather puzzled by it because it is intensely religious. The society of Bali is such that religion permeates every single aspect of it and everybody in that culture is very, very carefully defined in terms of who they are, what their status is and what their role in life is. It’s all defined by the church; they have very peculiar calendars and a very peculiar set of customs and rituals, which are precisely defined and, oddly enough, they are fantastically good at being very, very productive with their rice harvest. In the 70s, people came in and noticed that the rice harvest was determined by the temple calendar. It seemed to be totally nonsensical, so they said, ‘Get rid of all this, we can help you make your rice harvest much, much more productive than even you’re, very successfully, doing at the moment. Use these pesticides, use this calendar, do this, that and the other’. So they started and for two or three years the rice production went up enormously, but the whole predator/prey/pest balance went completely out of kilter. Very shortly, the rice harvest plummeted again and the Balinese said, ‘Screw it, we’re going back to the temple calendar!’ and they reinstated what was there before and it all worked again absolutely perfectly. It’s all very well to say that basing the rice harvest on something as irrational and meaningless as a religion is stupid – they should be able to work it out more logically than that, but they might just as well say to us, ‘Your culture and society works on the basis of money and that’s a fiction, so why don’t you get rid of it and just co-operate with each other’ – we know it’s not going to work! ..

Full speech transcript:

John Strong
Dec 2 2009 at 12:41pm

DNA of Liberalism.

Pete Boettke mentions Vincent Olstrom’s notion that “a sickness in the government can breed a sickness in the people.”

Will someone please comment on this?

This is a tantalizing (and yet frustrating) statement, because the causal chain is so elusive.

Which is it? Do “public choice problems” so debilitate a society that it fails to be liberal and democratic? That is what Vincent Olstrom says according to Pete Boettke (I think). Or is it some deeper “cultural” dysfunction that produces an anti-liberal corporativist state? Which is the chicken and which is the egg? I generally dislike the appeal to culture, since it is usually just a convenient way of throwing up your hands and confessing that you’re clueless.

Put another way: does the corporativist state debilitate the populace and create anti-liberal values? Or do anti-liberal values lead to a corporativist state and a society of rent-seekers?

Russ Roberts
Dec 2 2009 at 1:23pm

John Strong,

I think they mutually enforce each other.

I remember talking to someone who “worked” in the Soviet system in the 1940s. The system was corrupt. Everybody knew it was corrupt. You survived by cheating. That has to take a toll on a person. Not a permanent toll. But within that system, cheating and corruption were the way to survive and thrive. Not good.

Greg Ransom
Dec 2 2009 at 1:24pm

Hayek developed the concept of “membership selection” to help explain many of the things discussed in the podcast.

In an unpublished paper available on my “Taking Hayek Seriously” web site I’ve shown how membership selection in a differential selection process between groups can help explain the advance of science, using building blocks from Kuhn and Hayek and Darwin. And note well, this is a causal mechanism, it’s not a hand-waving “metaphor” at work here.

John Strong
Dec 2 2009 at 2:36pm

Greg, I made a serious effort to find the paper you mention on your website, but I can’t find it. Would you mind providing a link?

Professor Roberts, thanks for taking time to kick the can down the road. I wonder what the half-life is for a legacy like Soviet tyranny.

Greg Ransom
Dec 2 2009 at 5:23pm

John — here’s the url for my membership selection paper:

The full title is: “Thomas Kuhn and the Differential Selection Of Desiderata For Theory Choice Through the Differential Selection Of Community Members Acting Upon Alternative Implicit Criteria For Theory Choice”

John Strong
Dec 3 2009 at 6:22am

Fascinating paper, Greg! May I ask a question concerning the way your paper ties into the podcast?

Concerning the selective mechanism for new scientific paradigms, you write:

The number of those committed to these moribund paradigms dwindles to extinction as death takes its toll among the current population of scientists and the intractability of serious anomalies combined with a lack of success in normal puzzle solving makes recruitment among the young impossible.

Makes sense, but one problem I see: the success of a scientific theory is measured by its explanatory power, whence the disaffection of young scientists with old paradigms that cannot explain “anomalies,” but the measure of success for societies is not so clear.

In particular, what is the selective mechanism that favors liberal ideas?

I believe it was Barry Weingast in a prior podcast who made a persuasive argument that the constant state of warfare in Europe forced their societies to embrace more efficient economic models. If that is the basis for liberalism, the future looks bleak.

Michael Helm
Dec 4 2009 at 12:02pm

You might find this podcast about water

Particularly about 10-15 mins in when they
start talking about how the Bushmen
“managed” water rights and access as opposed
to what the government had on offer.

Dec 5 2009 at 7:06am

The podcast was great, really insightful. I really appreciate the attention to Vincent Ostrom’s contributions. I wasn’t aware of their breadth and depth. I checked out two of his books on public administration and democracy. They are masterful–essential reading for understanding the history of the technocratic state in America and the polycentric alternatives. The books were also great in terms of understanding Vincent’s contribution to the foundations of the literature on public choice and the Public Choice Society. Great works.

I am still knocked over in trying to understand the seeming chasm between the perspectives of Vincent and Elinor as two primaries in the Bloomington School. I’ve used Elinor’s work in teaching for much of my 30 year career–especially her single-authored book on the commons from the early 90s. In contrast to her earlier work, her recent efforts seem enmeshed in “global” environmental problems and “global” governance. Her approach to the latter seems very much oriented to building a global technocratic ‘state’ along socialist lines. Do you all have any insights on this? I’d be very happy to find out that Elinor is really a radical libertarian, but the global technocrat stuff is really troubling–perhaps there is a more liberty friendly interpretation.

Thanks for an enlightening podcast.

Dec 5 2009 at 7:46pm

Could someone link to the book on Institutions and Aid mentioned in the podcast? Would be very helpful for me.

Also, I love how everyone has claimed the Ostrom nobel as a victory for their ideology; from is this guy saying she is a socialist.

“Make no mistake, despite the somewhat tame Nobel committee description, Ostrom’s body of work is inherently radical, demonstrably anti-corporate, and implicitly socialistic. Her basic premise is that the purported “tragedy of the commons” — in which privatization of resources is viewed as the only realistic antidote to their complete exploitation — is actually an inversion of logic and reality, and that in fact the most sustainable forms of resource management are collective, cooperative, egalitarian, and decentralized in nature. Citing empirical case studies from around the world, Ostrom’s work demonstrates how people in localities on every continent have crafted and maintained elegant solutions to what might otherwise become conflict-ridden scenarios involving competition over dwindling essential resources.”

John Strong
Dec 5 2009 at 8:58pm

Yeah, Paul Krugman has also been singing her praises. Here’s the source of the confusion, IMHO:

People on the left have a dichotomy in their heads that runs like this:

We (the leftists) are the party of cooperation
They (the liberals) are the party of competition

Question: What requires more cooperation? A system of governance where competition finds full expression or a system where competition is forbidden?

A moment’s thought suggests that stronger instutions and social cohesion are required to permit the luxury of competition. And the bigger the society, the more risk you run by sanctioning competition.

You can reduce the risk of internal conflict by staying small, or you can let your society grow larger and let it be governed by abstract rules. For the latter you must somehow foster a public ethos of cooperation with the rules.

Joe Blow
Dec 6 2009 at 3:26pm

Do I recall hearing Russ and many other economists downsize the contributions other disciplines bring to the broader issues studied by social scientists? Seems like I’ve heard Roberts communicate a really self-righteous sounding tone about how economics is the be all end all. Rather silly if you ask me. But then again, not so silly if you consider the teachers many of these libertarian thinkers had: Friedman, etc…..

Can’t help but think of Friedman, a professed atheist, in hell right now saying something like, “if it were not for God, things would be perfect. God always ruins things for people trying to live free.”

How foolish?

John Strong
Dec 6 2009 at 4:29pm

Russ Roberts has, perhaps, the politest tone of anyone in the blogisphere. He questions himself and his own ideological priors more than any other commentator I can think of, and never hestitates to say “I don’t know.” He also has religious convictions which he states openly, in ways that show both his personal courage and respect for others who think differently. Are you sure you have the right blog?

Dec 7 2009 at 9:12am

Joe Blow, I also think you’re mixed up, Russ says he was disappointed that so many Econ PhD students discounted the Ostrom’s work because they are political scientists. The only real dismissive I recall was of the statistical sociology school, and that being dismissive of their methodology. Which is, frankly, questionable in many cases. I agree with John Strong, Russ goes out of his way to not be the typical blogger that has all the answers, I wonder if you’re not responding to a caricature of economists and not the man himself?

Dec 8 2009 at 12:19pm

I don’t quite understand how, given Boettke’s characterization of her work, Elinor Ostrom can say the following on climate change:

For example, when asked: From your point of view, what are the most pressing environmental problems?, her reply is:
The melting of the glaciers, rising sea levels, extreme storms, and the many other impacts of global warming are grave and need to be considered among the major environmental problems of our era. We should not, however, ignore environmental problems facing local communities and regions throughout the world.

Or again:

The evidence that says there is human induced climate change is at this point very strongly supported. Will carbon trading and emissions programs be the solution to this? Maybe not if we limit ourselves to these ideas, but I argue that it is important to think in ways of institutional diversity and find different solutions. I have been working on an article about cap and trade and what we are proposing is an effort to try to get a cap that starts from current levels and moves down, and that the amount of carbon released has to be forced down to what the Stern report recommends. As the price of access to carbon goes up, the money that goes into the system should be put in a trust fund to address the issue of innovation. A serious effort should also be directed towards some redistribution so that the poorest people on the earth will get some of that.

… We have to do something and the most important policy issue is how we get a broad commitment to support a global initiative. How do you get a fund going that is not being administered by a government? It would have to be an international fund, and so it is obvious that we have to solve this on an international level and give authority to an international body that is not a national government.

As is clear from all this, she believes that climate change is human-induced, that the impacts of global warming are “among the major environmental problems of our era”, that there should be redistribution to the poorest to deal with the impact of the alleged climate change, that we need to give authority to an international body that is not national governement!!!!!!!!!

Can any one tell me how all this squares with what Boettke said?

Stan R
Dec 9 2009 at 3:28am

CuriousEconomist, Boettke could not cover the scope or depth of her perspective or work in a single podcast. Even if he’s read most of her latest work, she covers a lot, and requires a lot of cross-discipline domain knowledge. The case studies that often accompany her analysis are necessary for a good grasp of when and how principles of commons management apply. You didn’t actually identify what didn’t square with what in Boettke’s explanations, so what follows is a very rough outline of the underlying reasoning on climate change.

If you consider an atmosphere common–which is, in fact, what we have here on planet Earth whether we like it or not–you see that the resource is shared. I’d argue it’s socially unjust to consider it otherwise. Further, those that impose the most on that common should, in theory, pay the most for that imposition. One possibility is paying into a trust that spends some of the fees on encouraging technologies and practices that reduce emissions, and/or pays out some of the fees to the “bottom of the pyramid” poor who emit the least. Whatever the preference, it’s easier said than done, no question. Some sort of international organization–whether just a “republic” of monitoring institutions, or something similar–is necessary because otherwise the nations will create a tragedy of the commons scenario, which is arguably the situation right now.

I would highly recommend reading Ostrom’s work, from Governing the Commons up to her latest article in PNAS, “A Diagnostic Approach for Going Beyond Panaceas.” Rather than quote grabbing, you might as well really dig in and explore the depth of her work. Plenty of papers are available here:

Dec 10 2009 at 12:34pm


Thanks for your reply. You suggest that “rather than quote grabbing”, I “really dig in and explore the depth of her work”.

Well, 1) it turns out that I’m very familiar with her work, not only her books and writings like the PNAS article “Going Beyond Panaceas” (BTW, she ended her Nobel lecture yesterday with the following sentence “There are no panaceas”). So, please, I’m not quote grabbing without any prior knowledge of her work.

2) And, the passages I’ve quoted are sufficiently long for them not to have been taken out of context. Further, I’ve provided the links for potentially interested readers who can make their own judgement. Moreover, I believe this is the last place where this kind of argument can be made as Russ’s excellent (I’m tempted to make an exception for this one) podcasts are one of the best tools of knowledge available on the web in my view because they are in the form of interviews…just like the two links I provided above are interviews with Elinor Ostrom. If you wish to hear a podcast of Ostrom in which she says similar things to those I’ve quoted above concerning climate change, I can provide a link.

You say that Boettke has read her latest work, I’m then even more intrigued by the absence of reference to the debate on climate change as this is PRECISELY what her latest work consists in, beyond her forthcoming (Sept. 2010 book), not to mention the current conference in Copenhagen. One of her latest papers is forthcoming in World Development Report 2010 to be published by the World Bank and…deals with climate change.

This said, after having watched Elinor delivering her Nobel Lecture summarizing her work (and read her forthcoming paper to be published by the WB) and Boettke’s podcast, I really believe that her views on climate change I’ve quoted above can be accommodated in her own interpretation of her intellectual journey delivered yesterday, and not in Boettke’s interpretation. Maybe that explains why he left this out… They are very different interpretations – even though she kindly endorsed Boettke’s book on the Bloomington School.

Dec 10 2009 at 12:47pm

Hmm, I wanted to write “Russ’s excellent (I’m EVEN NOT tempted to make an exception for this one) podcasts are one of the best tools of knowledge available on the web”. I did enjoy it as usual.

Dec 15 2009 at 5:05am

“History defies what theory dictated” – that reminds me of Feynman talking about what developing new physics theory involves; he talks (in some interview, I can’t remember which one now) about how what they are doing is looking at a game of chess being played, they observe that pawns can move 1 square unless it’s their initial move in which case they can move up to 2, also they must move diagonally when capturing another piece. Then one day a pawn gets to the other end of the board and something new that was not permitted by the pre-exisitng theory happens. The old theory is now not adequate…

okay i found a link to the interview, here it is:

John Strong
Dec 15 2009 at 10:24pm

No one took the bait. I was hoping someone would comment on my suggestion that free competition requires a high order of cooperation (much higher, in fact, than a social order where competition is restricted).

Well, Herbert Gintis says that Emile Durkheim made this very point.

Durkheim wrote:

“Social life comes from a double source, the likeness of consciences and the division of social labor.”

Durkheim’s point, according to Gintis, is that the division of labor not only requires cooperation, but it is the highest form of social order.

Dec 26 2009 at 5:16pm

Hi there!

Can somebody recommend me some podcasts for beginners, cause I’ve been listening last two podcasts and I can’t understand them((.
Thank you very much!

Comments are closed.


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Podcast Episode Highlights
0:36Intro. [Recording date: November 24, 2009.] This year's Nobel Prize went to Elinor Ostrom of Indiana University. Tragedy of the Commons; but her work is part of a much larger research project. What's the distinction? Variety of things, but big issue is to look at the power of civil society and self-governing citizenry; what are the characteristics and how actually do people engage in self-regulation and self-government. Civil society: the voluntary actions of individuals to solve collective problems, rather than to rely on the state. Political philosophy: Hobbes, social dilemmas could only be solved by contracting with the sovereign, or Adam Smith, who sees the spontaneous order of the market. What Vincent and Elinor Ostrom and their students are trying to do is to look at how it is that you can have Smithian solutions to Hobbesian dilemmas. What are some of the applications? The ones Lin is most famous for are common pool resources: water or forestry, fisheries; these produce a tragedy of the commons. What are the incentives and why was it called the tragedy of the commons? When you have a collective access to a scarce resource, no one has the incentives to take into account husbanding that resource. Everyone goes to use it, overuse it, and destroy its value. Enclosure laws in England; common property and other people's sheep go on the land; they eat today but the grass gets depleted and my sheep have nothing to eat tomorrow. Fisheries: Overfish the environment, fish get scarcer. If it were mine, I'd have the incentive for stewardship; but if other people's sheep are going to eat the grass, people will act in their own self-interest and destroy it. Garrett Hardin: juxtapose what Adam Smith's self-interest gives us which leads to the invisible hand, with the commons, which leads to the tragedy. So something other than self-interest has to be relied upon in order to take care of this resource and make sure that it gets conserved over time. What Lin does in her work is she studied close up how it is that communities come up with rules to take care of their common-pool resource. California all the way to Nepal, throughout history. Communities come up with rules, even though they are not private property rules, which would be the typical market response--let's privatize the commons, divide it up. In those situations where the technology doesn't allow that to happen, it's not the case that these people have succumbed to the tragedy of the commons. They instead find rules to govern access to the commons that serve the function that private property rights would have, to allow voluntary solutions to the dilemma. The rules can be norms. She opened our eyes: rules in use and rules in form. Rules in form: the legal rules that are set down. Rules in use are how the local community understands the rules. Would also add a distinction: rules in function. When you don't have the technology to parcel out the land or the ocean into private plots, we get rules in use which limit access, which forces accountability, which serves the function that private property would even though we don't have private property in form. We have collective ownership in form, but the rule in use is a "collective" only in the sense that it doesn't give the right to Russ Roberts or to Pete Boettke; what it does is give the right to the community, but Russ and Pete have limited access and are accountable for the way we use the resource. "Curb Your Enthusiasm" example: At the same time that Lin won the Nobel Prize, episode on which Larry and Christian Slater were at a party at Mary Steenbergen's house, and Slater was sitting at the buffet line and ate up all the caviar. Larry comes up to him and says, "You are violating the rules." People come up with these ideas that limit access. Shame, guilt, and disassociation--shunning--is one way people enforce these rules, which are not written down, very amorphous but real in those settings. Mary has Christian leave the party--ostracism. Lin's work, which focuses on community-based rules, doesn't embrace collectivism, though it is a collective choice. People get confused by this--old language; Vince: our language can prevent us from understanding what's going on in the world.
9:18Language important. Voluntary collective action. Discourse is marred by the presumption that collective things have to be done through the state. The state is an emergent system and the outcomes are not the result of collective choice. In contrast, when we band together voluntarily, with the right to exit or to expel, we solve lots of collective choice problems through voluntary association. One way to understand both Vincent and Lin's contribution is to see them both pushing for overcoming this stale debate. Role of experts. Tend to emphasize the idea of a unified state, polycentricism. Others might emphasize idea of community-based rules and can't just rely on private markets. It's because of a certain caricature of what the market is. They are making us rethink what we mean by "state" and also "market." Biggest way to understand what Vincent and Elinor are doing is to take Tocqueville's research program or the way Tocqueville describes society and democracy in operation and bring it to the new science of administration. Divide between civil society--which is made up of both nonprofit and for-profit ideas--and the state-led action. Markets are in their world embedded within a larger set of civil society and supporting institutions. The way in which the Smithian solution to the Hobbesian problem works is through the self-directed behavior of individuals embedded within civil society organizations, some of which are market institutions, others of which are churches, community groups, bridge club, neighborhood association that have these rules that govern our daily life. Leads to the idea of institutional analysis. Lin is a powerful thinker: address at the American Political Science Association (APSA), 1990s, titled it "A Behavioral Approach to the Rational Choice Theory of Collective Action." Three things that people don't associate as going together. Wants to have humanly rational choosers. Rational choice as if the choosers were human, with all their flaws; how do you go from the individual to the reality of a spontaneous order? It's through these various institutions, not the cognitive capabilities of man. Before podcast, talking about the Freakonomics thing: by contrast, Lin is part of stupidnomics, where we start with agents who are not imbued with all the rationality and knowledge of the world, but somehow they stumble upon because of the ecology they operate to solve vast social dilemmas. Vernon Smith podcast--behavioral economist where markets are correcting institutions and restraining our human flaws or sending us signals.
15:08Hayekian aspect of that: implicit in Elinor Ostrom's work. People are flawed, doing the best they can, and the outcomes turn out much better than you'd anticipate or that could be designed from on high because institutions or norms or rules help them pull together their information with others. In the background is competition amongst rules and norms; presumption in the background that the norms, rules, and institutions that emerge are better than just random. Hayek writes about this in Law, Legislation, and Liberty; hard book to absorb, trouble distinguishing between the way the world is and the way the world ought to be. Ferguson, pre-Adam Smith, talked about the invisible hand. Institutions, through competition, and the traditions we have--you don't eat all the caviar at the buffet table, that rule is the result of endless trial and error by religion, culture, civil society. That's the case in Hayek's rendering. In Vincent and Elinor's case, they are more focused on the way the system actually operates rather than the normative aspect of whether or not that is better in some meta-sense. What it is better than is what the public administration community was trying to impose in cities in the 1950s and 1960s, or the development community was trying to impose on less developed countries in the 1970s, 1980s, and 1990s. Vincent makes that argument in his book The Meaning of Democracy and the Vulnerability of Democracies, in which he talks about what it takes to be a self-governing citizenry. Workshop in political theory and public policy at Indiana that the Ostroms have run--part of their research and educational agenda is to contribute to the idea of creating a self-governing citizenry, which would enable a more self-governing society. Hayek's idea is different: both philosophical anthropology argument--we didn't adopt rules because we got reason; we got reason because we adopted rules. Tribal existence, competition over rules; Panglossian fallacy; functionalist aspect. Lin and Vincent are contributing to a broader project in spontaneous order studies; Hayek might have been the guy who set that research program; that's why in 2000, conference to honor Lin and Vincent. George Mason's association with Lin and Vincent go all the way back. Vernon Smith, ecological rationality idea and his Nobel Prize. All part of a broader project that traces back to the Scottish enlightenment. Hume brought up issues of how do you solve the common pool resources--didn't call it that--how do you set up a set of rules that are credible to handle an irrigation system, Treatise of Human Nature. Lin draws on game theory, experiments, public choice, Austrian economics. In aftermath of her winning the Nobel Prize, people said disdainfully of her that she's not an economist. Her intellectual enterprise has economics in it and is richer than that. Graduate students--if she's not on my reading list, it must not be important. Nature of economic education at the moment. Vincent--local public finance, award, well-recognized, wrote on fiscal federalism, huge issue for today. Because he wasn't located in an economics department and wrote in political science and social science journals, and also thought seriously about the words we use, the way we communicate and language, so therefore wrote philosophically--that work gets dismissed. Lin doesn't get dismissed, but not recognized by a certain subset within the economics profession. Steven Levitt--wrote that he'd never heard of her. Lin is first-rate scholar and an amazing teacher.
24:45Talking about the Bloomington school. Her empirical work is not traditional empirical work in economics, not statistical analysis; she does more of a case study approach. Messy and n=1. Matrix: thin, thick, clean and dirty. Box that's missing is thin theoretical description, rational choice or the economic way of thinking combined with the dirty empirical work. When there's a disjoint between the rules in form and the rules in use, so that the information that's collected is about the activities of rules and form. Example: Industrial organization (IO) or macro literature people using published prices as the measure of prices without realizing that there are discounts. Years of education in the right hand side when trying to explain wages, but years of education at one school might be a very different quality than a different school. Official story not the same as the actual reality of the story; if we want to understand the human condition we have to get access to this other form of data however we can--novels, newspaper accounts. Islamic banking example: tells you that there is a prohibition on charging interest. But anyone who studies Islamic banking practices--there's all kinds of ways they get around the prohibition. Also true of Jewish banking. Book co-author, Paul Dragos Aligica, was a student of Lin and Vincent's. Was a student in Romania that helped overthrow the regime in 1989; lived through the lie of the Soviet economy. Ostroms created a home for visiting scholars in Indiana, working on the way the system really operated instead of the official way the story was told. Buchanan, Tullock. Rent-seeking society in former Soviet Union. Just because you don't have official property rights doesn't mean you don't have any property rights. Barzell: The only thing the Soviets convinced us of is that no one owned anything when actually the people in charge owned everything. Myth of public ownership: distinction between property rights in cash flow and property rights in control over a resource. In these societies people had control rights. Flip back to what the Ostroms did having to do with the way cities operated. Cities unorganized, duplication--metropolitan areas--giant area with one city council. St. Louis is an example. NYC public schools: story: at one time the NYC public schools were among the finest in the nation, and that was when they all had to compete for a tax base among the 5 boroughs. No centralization, different school districts. Tibout model. Then unified to one giant school system. Stylized story. Makes the Ostrom point: multiple school districts more responsive to parents. They saw the diversity and duplication as the community trying to provide the public good resources that satisfied the voter demand. In their story is a microcosm of the social administration debate. Polycentricism--multi centers of authority--efficient. Metaphor of the market. What's the source of wealth in Europe, why no capitalism in China--China, Russia under a unified empire. More experiments, more feedback; people vote with their feet.
35:42Seductiveness of monocentricism, economies of scale. Which system should be used may not be the same for everybody; but also knowing what the best system is is not obvious. On top of that, with a centralized system you get the rent seeking. So even though in theory it's more efficient, in practice it stumbles horribly. Conference of accountants; just presumed that we need a single unified accounting system, best practices, without being aware that you may not be able to get the best system. Anti-one size fits all--the Ostroms. "The urban problem"--what they were saying was there are urban problems. Vincent: doesn't allow this little slight of language--in theory monocentricism works better; you have to think about what monocentricism would imply, and that doesn't work theoretically. Polycentric systems, despite what you think might be inefficient because it is duplication, we actually see as testing out and new feedback. Wisdom of the local people to resolve their conflicts works better than an expert from afar. Foreign aid; Ostrom; nested games, game within the game. To get foreign aid to be effective calls into question the ability of foreign aid. Easterly. What do we mean by development? Are they living peaceful lives, improving themselves? Lin is seeing more order in the local world than what the experts would see. Example from book by Stephen Lansing, Priests and Programmers. Green revolution, crop yields, going into Bali and trying to manage the water tables. Managed originally by local religious dictate, rules not formally written down. Not efficient from a scientific point of view. Could be better--in theory. Western experts went in; redesigned it. First year, crop yields went up. Next year, droughts and things they hadn't had in years. The scientists didn't have the knowledge embedded in the religion. Not saying that we always acquiesce to local conditions; but have to think about them seriously. Only path to reform is an indigenous one. Two ways in which the expert solution can go wrong. Maybe didn't have any experience with the drought, didn't realize that could happen, not enough data. Second, sometimes impose a set of new constraints, new institutions, and the indigenous institutions or people respond and don't implement them the way the way the experts thought. USAID project: Mancur Olson; series of seminars. Precursor of the de Soto spiderweb red tape analysis; tried to implement it in a ton of different countries. Beautiful study, showing all the benefits of reducing the red tape, but they won't reduce the red tape. What's the deal? Have to understand the indigenous incentives. Lin very eclectic in use of tools, experiments in the field, case studies, game theory, public choice.
45:25Digression, just another version of this story. Phrase "in theory"--in inadequate theory, in blind theory, in imperfect theory. Coase article, lighthouse and analogy. It was believed for a long time that lighthouses had to be publically provided. Samuelson's textbook, Sidgewick. Heading toward the rocks and there could be the holdup problem: lighthouse guy could yell out "If you don't pay me right now I'm going to turn the light off." Could exploit you; but what if there is a guy right next to him who is paid up. Classic public goods problem--private lighthouses couldn't survive. Coase: sailors got together and built lighthouses. They found ways to solve the problem. History defies what logic dictates. Pure economic theory tells us that something's possible, but history shows us that it actually took place. What happened? The Coasian revolution in economics: Where are the deals? Steven Cheung's paper on the Fable of the Bees, talked about in Mike Munger podcast. People said that can't happen; but there are all kinds of contracts that people sign. Harbormaster charged fees; lighthouse bundled good with other services, like coming into the harbor. Lin's work is about how individuals resolve a dilemma which in the strictest understanding of the theory would say it couldn't take place. Yet they somehow find ways to get to "contractually" get around it through the norms or the rules they voluntarily agreed to. Mentioned a Panglossian perspective: it's tempting to say often the market will figure it out; people will figure it out. We see that many times this does happen. Yet we don't want to go too far the other way and say therefore there will be no problems with externalities, or therefore there will be no problems with common property. Cases where these norms don't work, either because there are barriers that are state-imposed, or human limitations, or the nature of the problem is such that the mechanisms that normally work don't work. Caveat: paper, "Tragicomedy of the Commons." Mixed bag. A lot of common property problems where we haven't overcome them. Fishery problem of the ocean, traffic problem in American cities. Just pricing the roads doesn't always work--have to get the buy-in of the drivers. Limitations: move us from Elinor's work to Vincent's work: What are the preconditions for developing a self-governing citizenry? Common wisdom of the people often outdistances that of the administrator, but how scalable is this? Preconditions of living a truly democratic life, where "democracy" doesn't mean simply voting, but something broader about what it means. Goes back to the Tocqueville project. Vincent: a sickness in the government can breed a sickness in the people. We have social dilemmas around us all the time. Important not to assume them away or have an automatic solution. Market romanticism and government romanticism. Jedi mind trick: there are no externalities. There are externalities, throws up opportunities for others to find creative solutions for that. Positive social scientist: As Hayek says, we have to open ourselves up to the mystery of the mundane, a miracle. Shock you into thinking about the miracle of the market. Amazingly complex, not something so simple. Normative implications: we see power in voluntary choices that is absent when the state comes in. Ruggedness of individuals that Ostrom is trying to get us to get out.
54:41Vast range of solutions that societies and individuals come up with through voluntary association: cultural norms, contracts, use the state to enforce the contract; religious stricture accepted by a subgroup. Solutions that emerge. Tendency for economists to try to create these from scratch--in the laboratory, meaning on the yellow pad. These norms, rules, institutions in use mimic the function of prices or private property. Fad, trend, interest in economists in designing these institutions rather than having them emerge. But they haven't turned out very well. One reason is they get put through the sausage factory, get tweaked and changed by special interests--e.g., California energy market, which was used to indict private markets, weird given that there were price controls, not deregulation. Cap and trade discussions. Sulfur-dioxide controls: a pseudo-market. Thoughts? Blind squirrel catches a nut every once in a while. Enterprise succumbs to one size fits all. What Lin is getting at is a striving for institutional diversity. Incentive compatibilities, but we find ways to work with that, multiplicity of ways. Hayek, in The Road to Serfdom: It's never a debate between planning and no planning--it's who and whom is going to do the planning. Lin: What is happening and why is it happening; she's an embracingment of the curiosity of the social scientist to have as to how humans solve their issues in the world, not the scientist as an engineer whose job is to solve the problems. Normative aspect: educate citizens so they can become informed participants in a democratic life, free and responsible individuals. Recent meeting; Liberty Fund-like remarks. If you allow profits but socialize the losses, why would you not expect things to go haywire? Seemed to be private property rights but didn't have the negative side. Freedom but no discipline or responsibility. How do we get that back? It's not that the market failed; it's that the rules under which the system operated generated perverse outcomes that were translated through market mechanisms. What it means to live under liberalism: institutions and characteristics of the individual. Political scientists.