Governing the Commons: The Evolution of Institutions for Collective Action

Ostrom wants to know how a group of individuals “who are in an interdependent situation can organize and govern themselves to obtain continuing joint benefits when all face temptations to free ride” (29). She defines the terms that she uses in her study. A CPR is a natural or man-made resource system that is large enough to make it costly to exclude people from obtaining benefits from it. The “resource system” refers to the stock variables, while the “resource units” are what individuals use or take from the resource. As long as the average rate of withdrawal does not exceed the average rate of replenishment, the resource is sustainable. The process of withdrawing resource units is called “appropriation,” and those withdrawing them are called “appropriators.” Those who arrange for the provision of a CPR are called “providers,” and those who maintain the resource via repairs are called “producers.” CPRs differ from other collective goods in that one appropriator’s withdrawals can negatively affect others. In a pure public good, such as clean air, one’s breathing does not negatively impact the breathing of others. With CPRs, there is the potential problem of overuse.

Individuals make decisions in an uncertain environment. Ostrom claims that appropriators partake in a form of trial-and-error learning. However, their economic livelihood “depends on their ingenuity in solving individual and joint problems” (34). While individuals are likely to give more value to immediate rather than distant benefits, that discount rate is dependent on several factors. For example, appropriators who expect their children to farm the same land place value on future benefits. This equation is also impacted by the level of economic security, as immediate benefits are more important if there is insufficient food. 

Importantly, cultural norms of behavior are also critical to solving joint problems. If there is a culture with strong norms against opportunistic behavior, appropriators “will be less wary about the dangers of opportunism” (36). In the absence of such norms, monitoring of behavior becomes costly. Four internal variables—expected benefits, expected costs, internal norms, and discount rates—impact an individual’s rational choice. Thus, Ostrom analyzes combinations of situational variables that are likely to affect choices.

When appropriators act independently of one another, the collective output will be less than if they coordinated efforts. Thus, appropriators confront the problem of changing the situation of independent action to the adoption of coordinated strategies, which requires organization. The typical solutions offered for this dilemma usually involve the imposition of an external actor, either a private firm or the state. 

By contrast, Ostrom aims to develop a theory that explains how the participants themselves can solve the problems of establishing new institutions, make credible commitments, and ensure effective monitoring. She calls introducing a new set of rules or institutions a “second-order collective dilemma” (42). The participants must be willing to monitor themselves and impose sanctions over time to avoid any instances of free-riding or abuse of resources. 

To understand how appropriators solve CPR problems, a researcher must move “back and forth from the world of theory to the world of action” (45). Scholars have tended to assume one level of analysis in a game structured as a prisoner’s dilemma. Ostrom alternatively presumes that appropriators face a variety of appropriation and provision problems, with different structures. They must therefore go back and forth across arenas and levels of analysis. 

Appropriation problems deal with the flow or effects of the allocation of resource units on the CPR. The goal is to avoid rent dissipation or overuse and to reduce uncertainty and conflict over the assignment of rights. Appropriators must also assign spatial or temporal access to the resource and, in doing so, must be mindful of the ease of monitoring. Provision problems have to do with the way responsibility is assigned for maintaining the resource over time and include, for example, maintenance or building. Organizing these activities is challenging but necessary. The two problems are interdependent, as “solving provision problems depends on achieving adequate solutions to appropriation problems” (49-50). There is not one correct way to do this, which is why multiple levels of analysis are necessary.

There must be both operational analysis, with a fixed set of rules, and institutional analysis, which examines how those rules came to be. Institutions establish the rules, such as who the decision makers are, what actions are allowed, and what information is provided. These working rules, known to appropriators, may or may not conform to formal law. Ostrom’s focus is on these de facto rules. All such rules are “nested” within another set of rules that dictates how such rules can be changed (51). 

Essentially, there are three sets of rules that impact the management of CPRs. First, there are operational rules, which impact the daily decisions about resource withdrawal, monitoring, information exchange, and sanctions. Second, there are collective-choice rules, which are used to make the policies or operational rules about how a CPR should be managed. These can be made by the appropriators themselves, their agents, or external authorities. Third, there are constitutional-choice rules, which affect who is eligible to make collective-choice rules and determine the procedures to be used in making those rules. Rules are changed less often than are strategies used to cope with existing rules. However, researchers must be mindful of the process of change and be willing to shift arenas if necessary.

In her case studies, Ostrom identifies aspects of the physical, cultural, and institutional settings that “capture the essence of the problems individuals are facing” (55). She examines their solutions, which are not necessarily optimal but nonetheless worked. She seeks to explain why they worked in her cases of successful management and why other cases failed.