Tuesday, October 13, 2009

The Nobel Prize in Economics

On Monday, two American economists won the Nobel Prize in economics.

Read about it here at CNN.

Notably, Professor Elinor Ostrom (Indiana University) won the award for her work on governance of common property resources.

Check out this short YouTube video (a little over 8 minutes) for her take on the issue.

Her opposition to "top down" control,
her insistence that it doesn't have to be a "tragedy",
her notion of collective ownership and enforcement of property rights ("who is a member?"),
her push for adaptive management, trust in the other members, the importance of local knowledge and that the diversity of management institutions match the diversity of the resources being governed.


P.S. We'll cover the Gordon model that she references later in the term when we get to fisheries econ.


Dr. Peter Schuhmann said...

Tim Haab (OSU economics professor and env-econ.net blogger) sums up the work of Dr. Ostrom and others nicely in a piece published in The Journal of Environmental Management:

"Economists have tended to view the presence of externalities and other market failures as leading to a private equilibrium that would not be Pareto optimal. In the exploitation of common-pool resources, especially biological resources, this would lead to the much-discussed `tragedy of the commons'. A challenge to this traditional view has emerged from study of the theory and practice of the exploitation of common-pool resources. A considerable body of research shows that, for many common pool resources, a private equilibrium embedded in an endogenous institutional structure has resulted in sustainable harvests and biomass. Evidence for these findings appears in numerous places, including Feeney et al., Ostrom (1990), McCay and Acheson, and Sethi and Somanathan."

"In general, collective action can result in amelioration of externalities when a social norm influences individual decision-making. Policies aimed at increasing the level of compliance can result in dynamic as well as static adjustment to the level of compliance if individuals react to social norms. Traditional models of management of the commons with regard to pollution treat individual decisions to pollute as independent of social influences. The proposed framework suggests that management decisions that incorporate social interaction into the decision framework can lead to lower cost policy solutions that evolve over time rather than immediately reach the desired steady state equilibrium."

Journal of Environmental Management (2002) 66:67-76.

In short, social norms can change the way individuals view the costs and benefits of their actions, and can serve to offset the self-serving nature typically associated with our use of common property.

Questions: Under what circumstances will this work? Under what circumstances will this not work? Hint: think about micro environmental problems and macro environmental problems.

Anonymous said...

The example of this working, that I recall, from some of Dr Ostrom's work is of the Swiss farmlands. There, the relatively small size of the farm lands and the aspect of traditions (social norms) being passed down from generation to generation of farmers, contributes to successful use of the common resource farmlands. Conversely, one circumstance under which social norms might not function successfully, is where, geographic scale diffuses the impact of individual actions. In addition actions taken may vary significantly as individual rationales are likely to be more divergent. The attendant costs to the common resource are still present and accumulate and thus eventually it becomes degraded.
Derek Alleyne CERMES