Elinor Ostrom, 1933-2012

The political scientist Elinor Ostrom, co-recipient of the 2009 Nobel Prize in Economics, died this morning at the age of 78. I met her just once, after a talk she gave at Columbia sometime in the 1990s. It was in a very interesting seminar series organized by Dick Nelson if I recall correctly.

I was a great admirer of Ostrom's research on common pool resources, and tried to interpret some of her insights from an evolutionary perspective in some joint work with E. Somanathan a while ago. I've written about her here on a couple of occasions, and once reviewed a book that was largely a celebration of her vision (she had a hand in no less than six chapters).

Here are some extracts from a post written soon after the Nobel announcement:

Ostrom’s extensive research on local governance has shattered the myth of inevitability surrounding the “tragedy of the commons” and curtailed the uncritical application of the free-rider hypothesis to collective action problems. Prior to her work it was widely believed that scarce natural resources such as forests and fisheries would be wastefully used and degraded or exhausted under common ownership, and therefore had to be either state owned or held as private property in order to be efficiently managed. Ostrom demonstrated that self-governance was possible when a group of users had collective rights to the resource, including the right to exclude outsiders, and the capacity to enforce rules and norms through a system of decentralized monitoring and sanctions. This is clearly a finding of considerable practical significance. 

As importantly, the award recognized an approach to research that is practically extinct in contemporary economics. Ostrom developed her ideas by reading and generalizing from a vast number of case studies of forests, fisheries, groundwater basins, irrigation systems, and pastures. Her work is rich in institutional detail and interdisciplinary to the core. She used game theoretic models and laboratory experiments to refine her ideas, but historical and institutional analysis was central to this effort. She deviated from standard economic assumptions about rationality and self-interest when she felt that such assumptions were at variance with observed behavior, and did so long before behavioral economics was in fashion... 

There is no doubt that her research has dramatically transformed our thinking about the feasibility and efficiency of common property regimes. In addition, it serves as a reminder that her eclectic and interdisciplinary approach to social science can be enormously fruitful. In making this selection at this time, it is conceivable that the Nobel Committee is sending a message that methodological pluralism is something our discipline would do well to restore, preserve and foster.

And from the book review:

Although several distinguished scholars have been affiliated with the workshop over the years, Ostrom remains its leading light and creative force. It is fitting, therefore, that the book concludes with her 1988 Presidential Address to the American Political Science Association. In this chapter, she identifies serious shortcomings in prevailing theories of collective action. Approaches based on the hypothesis of unbounded rationality and material self-interest often predict a “tragedy of the commons” and prescribe either privatization of common property or its appropriation by the state. Policies based on such theories, in her view, “have been subject to major failure and have exacerbated the very problems they were intended to ameliorate”. What is required, instead, is an approach to collective action that places reciprocity, reputation and trust at its core. Any such theory must take into account our evolved capacity to learn norms of reciprocity, and must incorporate a theory of boundedly rational and moral behavior. It is only in such terms that the effects of communication on behavior can be understood. Communication is effective in fostering cooperation, in Ostrom’s view, because it allows subjects to build trust, form group identities, reinforce reciprocity norms, and establish mutual commitment. The daunting task of building rigorous models of economic and political choice in which reciprocity and trust play a meaningful role is only just beginning... 

The key conclusions drawn by the contributors are nuanced and carefully qualified, but certain policy implications do emerge from the analysis. The most important of these is that local communities can often find autonomous and effective solutions to collective-action problems when markets and states fail to do so. Such institutions of self-governance are fragile: large-scale interventions, even when well-intentioned, can disrupt and damage local governance structures, often resulting in unanticipated welfare losses. When a history of successful community resource management is in evidence, significant interventions should be made with caution. Once destroyed, evolved institutions are every bit as difficult to reconstruct as natural ecosystems, and a strong case can be made for conserving those that achieve acceptable levels of efficiency and equity. By ignoring the possibility of self-governance, one puts too much faith in the benevolence of a national government that is too large for local problems and too small for global ones. Moreover, as Ostrom points out in the concluding chapter, by teaching successive generations that the solution to collective-action problems lie either in the market or in the state, “we may be creating the very conditions that undermine our democratic way of life”. The stakes could not be higher.

Earlier tributes to Ostrom from Vernon Smith and Paul Romer are well worth revisiting.