Saturday, March 27, 2010

Of LLM Markets, Tragedy of the Commons and Elinor Ostrom

Phew! The silly season of LLM admissions is behind me now, (where I gave generally a good account of myself, offers from Chicago, Columbia, and wait list at Stanford law being the highlight of this campaign. Was not offered @ Yale. Surprising results from Cambridge, Mass. though :)!) (Guess you guys know who the offerees this year from Government Law College are). No Comments.

Anyway, now that the season has ended, I want to blog about Elinor Ostrom and the tragedy of the Commons and the solutions that she proposed for the same.

Elinor who? Yeah, you could be forgiven for this question. After Elinor won the Nobel memorial prize in Economics in 2009 for her work on the global commons, mainstream Economists, that usually throng the lobbies of such universities as Harvard, Chicago, Berkeley asked the same question. So, that question is not unusual for law students to ask. Answer: Elinor Ostrom is a political scientist from Indiana University, Bloomington and sth of a pioneer in solving the tragedy of the commons.

Tragedy of the Commons? Gareth Hardin writing in 1966(?) spoke about the problems faced in conserving common pool resources. He wrote that common pool resources are likely to suffer from sth like the race to the bottom where every individual consumer will have the incentive to exploit the resource to the hilt (whereas collectively they all stood to benefit from conserving the same). This race to the bottom, Hardin prophesied, will destroy the common pool resource and that he termed as "tragedy of the commons".

Free market proponents argued that the tragedy of the commons could be averted by creating private property rights in the resource so that persons have appropriate incentives to conserve the resource (and so that the Coase theorem may operate to "push " the resource to the person that valued it the most). Others termed it a patent case where Government ought to step in to nationalize the resource and conserve the same (This is because there are no private incentives to conserve the resource as the costs of conservation are concentrated on the one party and the benefits that derive from the conservation are diffuse; the so called public goods problem in Economics and a classic case of government intervention).

For decades, private property and government intervention were supposed to be the only solutions to the tragedy of the commons. Elinor however had a different perspective to offer. She believed in the market hierarchy but not to the extent that Chicago did and being a political scientist she was aware of the public choice and political economy literature (indeed, she served as the Chair of the Public Choice Society for a while) to believe that government intervention could be a solution to the tragedy.

Using tools including qualitative empirics and game theory, Elinor proved that locally created governance solutions could solve the collective action problems that lead to the tragedy of the commons. Her solution is basically a model of how public goods could be provided privately and it tends towards a "non-government" model of managing the commons. "Polycentric Governance" as her team termed it. View her Nobel lecture here.

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