John Quiggin has an article in Crikey on this year's Nobel prize winners for economics (which seems to have been granted for some tangible research, as opposed to the thus far empty rhetoric Obama coasted to the Nobel peace prize on), looking at Elinior Ostrom's rejection of the thesis of the "Tragedy of the Commons" - In a top year for economics, the Nobel goes to ….

The award of the Economics Nobel Prize (for pedants, The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) to Elinor Ostrom and Oliver E. Williamson came as a surprise to most economists, but a welcome one for most of the commentators I’ve seen.

As regards the surprise, the global financial crisis had (for me, at least, but not for some betting markets) ruled out the early favorite, Eugene Fama, famous for developing the efficient financial markets hypothesis, not to mention the majority of macroeconomists whose models failed to warn of the impending crisis or provide useful responses. Still, there were plenty of contenders who seemed more likely.

Of the two winners, Williamson was on most lists of people (actually, men) who were bound to win sooner or later. His fundamental work on transactions costs and economic organisation, largely done in the 1970s and 1980s changed the way economists think about these things. That said, it raised more questions than answers. Economists still tend to use “transactions costs” as a kind of black box, in which to put anything that prevents markets working as they should.

My view is that the ultimate answer will be found by dropping the assumption that market participants are perfectly rational agents, capable of considering all possible outcomes of the transactions into which they enter. But I would say that  — most of my theoretical work these days is about bounded rationality in one form or another.

Elinor Ostrom is a far more interesting choice. She’s the first woman to win the prize and (much more controversial for some) a political scientist. The best way to understand the impact of Ostrom’s work is to look at what it displaced. In 1968, Garrett Hardin wrote a highly influential article in Science called “The Tragedy of the Commons”.

Hardin started with the story of how the medieval commons in England had collapsed under the pressure of overgrazing, and used this as a metaphor for modern environmental problems. The solution he argued was “enclosure”, that is, the conversion of the commons into private property. Hardin’s work was influenced by, and encouraged the further development of, the “property rights” school of economic thought, which saw the expansion of private property rights as the central engine of economic progress.

Hardin took his analysis to its logical conclusion in his Lifeboat Ethics: the Case Against Helping the Poor, which suggested that having seized enough property rights to support themselves, the rich should (metaphorically) throw the poor overboard.

Decades of careful empirical work on actual common property institutions, in which Ostrom has played the leading role has shown that Hardin’s description of the commons was totally inaccurate, and that the policy prescriptions he derived were likely to be counterproductive. That said, Ostrom is not romantic about common property institutions, and observes that they need not be egalitarian and may be rendered ineffective by changing circumstances.

The message from Williamson and Ostrom that a mixed economy can involve not just private and public ownership but a range of other possible institutional structures, interacting through markets, contracts, regulations and direct collective management. Ostrom shows how the historical example common property in resource management may be applied modern problems involving externalities, local public goods and pollution.

Ian Angus has a follow up to his piece on "The myth of the tragedy of the commons" - Once Again: ‘The Myth of the Tragedy of the Commons’. I'm not so sure about his blog's subtitle - "Ecosocialism or Barbarism: There is no third way" - but ideology aside, its still an interesting subject.

The response to my recent article, “The Myth of the Tragedy of the Commons,” has been very encouraging. It prompted a small flood of emails to my inbox, was reposted on many websites and blogs around the world, and has been discussed in a variety of online forums.

The majority of the comments were positive, but many readers challenged my critique of Garrett Hardin’s very influential 1968 essay, “The Tragedy of the Commons.” A gratifying number wrote serious and thoughtful criticisms. While they differed in specifics, these responses consistently made one or more of these three points:

* How can you say that the tragedy of the commons is a myth? Look at the ecological destruction around us. Isn’t that tragic?
* It doesn’t matter if Hardin’s account of the historical commons was wrong. He wasn’t writing history: he just used the commons as a model, or a metaphor.
* Hardin wasn’t rejecting all commons, just “unmanaged commons.” A “managed commons” would not be subject to the tragedy.

This article responds to those points. ...

I occasionally wonder if every piece of information out there has some form of political bias embedded in it, with this article from the Monthly Review being a good example - The myth of the tragedy of the commons (via Energy Bulletin, which likes to proffer a bit of Marxist theory from time to time).

Will shared resources always be misused and overused? Is community ownership of land, forests, and fisheries a guaranteed road to ecological disaster? Is privatization the only way to protect the environment and end Third World poverty? Most economists and development planners will answer "yes" -- and for proof they will point to the most influential article ever written on those important questions.

Since its publication in Science in December 1968, "The Tragedy of the Commons" has been anthologized in at least 111 books, making it one of the most-reprinted articles ever to appear in any scientific journal. It is also one of the most-quoted: a recent Google search found "about 302,000" results for the phrase "tragedy of the commons."

For 40 years it has been, in the words of a World Bank Discussion Paper, "the dominant paradigm within which social scientists assess natural resource issues" (Bromley and Cernea 1989: 6). It has been used time and again to justify stealing indigenous peoples' lands, privatizing health care and other social services, giving corporations "tradable permits" to pollute the air and water, and much more. ...

Given the subsequent influence of Hardin's essay, it's shocking to realize that he provided no evidence at all to support his sweeping conclusions. He claimed that the "tragedy" was inevitable -- but he didn't show that it had happened even once.

Hardin simply ignored what actually happens in a real commons: self-regulation by the communities involved. ...

A summary of recent research concludes:

[W]hat existed in fact was not a "tragedy of the commons" but rather a triumph: that for hundreds of years -- and perhaps thousands, although written records do not exist to prove the longer era -- land was managed successfully by communities. (Cox 1985: 60)

Part of that self-regulation process was known in England as "stinting" -- establishing limits for the number of cows, pigs, sheep, and other livestock that each commoner could graze on the common pasture. Such "stints" protected the land from overuse (a concept that experienced farmers understood long before Hardin arrived) and allowed the community to allocate resources according to its own concepts of fairness.

The New Yorker has an interesting look at the opposite of the "tragedy of the commons" problem - what can happen when there is too much private ownership - something we frequently see happen in the field of intellectual property, which really should have a very short half life.

Another example they use is of the difficulty of building out the grid when large numbers of small landowners need to be negotiated with - a problem we will see more of as we switch to large scale renewables (which may be a factor favouring distributed generation instead of large, centralised CSP or wind plants) - The Permission Problem.

In the second decade of the twentieth century, it was almost impossible to build an airplane in the United States. That was the result of a chaotic legal battle among the dozens of companies—including one owned by Orville Wright—that held patents on the various components that made a plane go. No one could manufacture aircraft without fear of being hauled into court. The First World War got the industry started again, because Congress realized that something needed to be done to get planes in the air. It created a “patent pool,” putting all the aircraft patents under the control of a new association and letting manufacturers license them for a fee. Had Congress not stepped in, we might still be flying around in blimps.

The situation that grounded the U.S. aircraft industry is an example of what the Columbia law professor Michael Heller, in his new book, “The Gridlock Economy,” calls the “anticommons.” We hear a lot about the “tragedy of the commons”: if a valuable asset (a grazing field, say) is held in common, each individual will try to exploit as much of it as possible. Villagers will send all their cows out to graze at the same time, and soon the field will be useless. When there’s no ownership, the pursuit of individual self-interest can make everyone worse off. But Heller shows that having too much ownership creates its own problems. If too many people own individual parts of a valuable asset, it’s easy to end up with gridlock, since any one person can simply veto the use of the asset.

The commons leads to overuse and destruction; the anticommons leads to underuse and waste. In the cultural sphere, ever tighter restrictions on copyright and fair use limit artists’ abilities to sample and build on older works of art. In biotechnology, the explosion of patenting over the past twenty-five years—particularly efforts to patent things like gene fragments—may be retarding drug development, by making it hard to create a new drug without licensing myriad previous patents. Even divided land ownership can have unforeseen consequences. Wind power, for instance, could reliably supply up to twenty per cent of America’s energy needs—but only if new transmission lines were built, allowing the efficient movement of power from the places where it’s generated to the places where it’s consumed. Don’t count on that happening anytime soon. Most of the land that the grid would pass through is owned by individuals, and nobody wants power lines running through his back yard.

The point isn’t that private property is a bad thing, or that the state should be able to run roughshod over the rights of individual owners. Property rights (including patents) are essential to economic growth, providing incentives to innovate and invest. But property rights need to be limited to be effective. The more we divide common resources like science and culture into small, fenced-off lots, Heller shows, the more difficult we make it for people to do business and to build something new. Innovation, investment, and growth end up being stifled.

Opportunities forgone aren’t always easy to see. The effects of overuse are generally unmistakable—you can’t miss the empty nets of fishing boats working overfished oceans, or the scrub that covers an overgrazed field. But the effects of underuse created by too much ownership are often invisible. They’re mainly things that don’t happen: inventions that don’t get made, useful drugs that never get to market.