Property Right (Bromley)

• Claim to a benefit stream that a govt. will agree to protect through the assignment of duty to others who may wish to interfere with this benefit stream.

• A social relationship

involving benefit streams, rights holders, and duty bearers.

Alternative forms of property

• Private Property – one owner

• Common Property – multiple owners

• Open Access – no owners, no duties

Advantages and Disadvantages of Private Property

• Protects again abuse and waste• Promotes investment• Promotes market transactions to re-allocate for

efficiency

• Externalities!• Discount rate?• May be high social costs of assigning and policing individual rights.

Alternative Solutions for Externalities

• Privatization

• Government regulation

• Common Property!

Problems of Government Regulation

Rent-seeking

Information problems (local knowledge)

Enforcement problems

Garret Hardin’s Tragedies are Cases of Open Access

• Freedom to have children• Freedom to enter labor market• Commons for cows: incentive for individuals to

try to increase number of cows until group returns decrease

Externalities!

Harden says “mutual coercion” can make us more free!

Common Property Regime (CPR)

• Based on social institutions and cooperation

• Use is excluded outside group

• Use is regulated inside group

• Equity and sharing are important

(Also known as Common Pool or Commons)

Common Property is a social system of rules

•Ownership entails duties, privileges, mutualities that bind joint owners to the resource and to each other (Malinowski, 1926).

•Rules coordinate household use to maximize group benefits

Common Property

• Likely to be associated with marginal, low-income situations – insufficient surplus for establishing private property (Runge)

• May be associated with resources with high uncertainty

• Individual benefits from joint action sufficiently large to offset transactions costs

• “Transactions costs” may be offset by enjoyment of social interaction!

Economists’ dismal view about cooperation

• Prisoner’s Dilemma – although cooperation is optimal, it is not a Nash equilibrium

• Free-riding• Rent-seeking

Runge: some free-riding may be tolerated.Mancur Olson: “priviledged” group is where benefits

of group provision are sufficient for a subgroup to provide a collective good

Economists’ Types of Goods

Private Goods Common Property

Club Public Goods

Exclusionary Non-exclusive

Rival

Non-rival

Evidence for Cooperation, especially in smaller “local”

groupsMutual Aid (Kropotkin, 1914)

presents history of social groups engaging in mutualism and

cooperation

Prisoner’s Dilemma and Problems of Cooperation

Note: repeated PD – Tit-for-Tat – can be cooperative (Axelrod). Communication improves cooperation!

Assurance Game: there are multiple Nash equilibria: how to

find the “right” one?

(5,5) (3,2)

(2,3) (4,4)

Player 1

Coop. Defect

Player 2

Coop.

Defect

Success of Commons (Runge)

• As heterogeneity of group increases, it is harder to maintain commons

• Institutions should foster coordinated expectations• Internal group incentives to maintain and enforce

CPR should be strong• “Social costs” of maintaining CPR may be lower

when rules are part of customs• Reputation loss in a small group is a high cost!• Fairness!

Important for Success of Commons (Ostrom)

• Common understanding and acceptance of rules, rationale for commons

• Mutual trust and reciprocity• Common values • Behavior/ resource utilization is visible, or

there is a monitoring system• Punishment of offenders

Do Commons Conserve Resources?

• Discount rate question, as for private property

• Feedback control system is needed

(knowledge of ecological system)

Why Common Property or Private Property?

• Nature of the resource (fugitive or uncertain)

• Transactions costs to exclude

• Technologies for harvest or control

• Scale of society

Evolution of Property Systems

• Some believe that common property evolves toward privatization

• Successful CPR implies an effective local capacity to adjust to changing conditions

Sources of Commons Demise

• Loss of control

• Government may usurp local ability to resolve problems

• Population expansion

• New technologies

No Universal Prescription for any PR Regime (Runge)

• Different types of institutions are responsive to different types of resources/ local environments.

• Institutions are responsive to local factors of production and costs and benefits of alternative rules.

• Appropriate institutions must respect traditions and constraints of local needs.

Four Attributes for Studying the Commons (Oakerson)

• Physical and Technical Attributes

Jointness: rules are such that one person’s use does not subtract from another’s.

Exclusion: individually regulated; or only excluded to those outside community.

Indivisibility: can resource be divided? cost?

Attributes cont.

• Decision-making arrangements: Rules that structure individual and

collective choices. Organizational and Institutional rules . Who decides what in relation to whom. Types: (1) operational rules; (2) collective

choice; (3) external arrangements.

Attributes cont.

• Patterns of Interaction

Social norms, customs, etc. that determine how group members interact.

• Outcomes

Pareto optimality/improvement: can anyone be made better off and no one worse off?

Equity and distribution

Local Commons (Seabright)

• Local: the situation precludes open access

e.g. assets in small communities; irrigation

• Global: absence of power of any particular state to affect problems

e.g. global climate change

Importance of Informal Solutions to Local Problems (Seabright)

• Separate production from distribution

• Provide for investment in future production

• Recognize that life is a series of repeated games

• Improve opportunities for communication

• Improve level of trust (social capital)

Formal Incentives for Cooperation (Seabright)

• Privatization & tradability may destroy trust• Link one common property to another, so that

mis-use has a cost.• Price versus quota: quota easier to administer• Rotation schemes: perceived fairness• Specialize functions: separate management and

monitoring• Avoid management by the state; decentralize!