Nitin Desai: Nobel thoughts

Elinor Ostrom's Nobel focuses attention on the governance of common property resources

Elinor Ostrom, the co-winner of this year’s Nobel Memorial Prize for Economics, is actually a political scientist. Her work is in the area of governance, particularly of common property resources, and includes both field work on the management of local irrigation systems and forests as also substantial contributions to how such systems can be analysed.

Almost exactly a year ago Elinor Ostrom spoke at the Institute of Economic Growth as part of the Golden Jubilee celebrations and IEG deserves our thanks for spotting an exceptional talent and bringing it to our attention. This was in keeping with its emphasis on linking economics with the other social sciences.

 

Ostrom’s theme at the IEG was how institutions for collective action evolve. Her talk was based on her extensive field work in Nepal where she found that “farmers, who lack education or formal training, can on average outperform highly educated engineers in the design and operation of irrigation systems.”* She cites results comparing farmer-managed and agency-managed irrigation systems and shows that the former are superior in their performance on measures of technical and economic efficiency.

This however is only the beginning. What is even more exciting is her approach to describing and analysing such systems. Her work is in the rapidly developing discipline of institutional economics, which looks beyond supply and demand functions to the evolution of the institutional structures that determine the shape and position of these functions, how equilibriating processes work, and, even more important, how they evolve over time.

Ostrom’s focus on common property resource management is perhaps the most fruitful area for this institutional approach, as the assignment of rights and responsibilities cannot be set by the standard market procedure of individual users maximising utility, individual producers maximising profits and competitive markets securing a balance between demand and supply.

This is of particular interest to us in India because of the role that common property resources play in rural life. According to the NSS 54th round survey done 10 years ago these resources account for 15 per cent of the geographical area and amount to about 0.31 ha per household. The percentage of rural households who rely on access to commons for grazing is 20 per cent, for water 23-30 per cent, and for firewood 45 per cent. Yet they play only a minor role in our rural development programmes and the general tendency, till recently, was to let public agencies or even private parties displace local customary institutions. There is some change now with the growth of panchayati raj institutions, pani panchayats, forest management groups, cooperative approaches for wasteland rehabilitation and so on. But we still lack a proper understanding of the pulls and pressures of local communities and power structures.

This is where Ostrom’s work can help. The conceptual structure that she uses for analysing the properties of systems for managing common property resources centres on the rules that are made by the community or given by some external agency for assigning rights and responsibilities to the users of the resource.

Ostrom distinguishes seven categories of rules. First, there are boundary rules about who are the relevant stakeholders— for irrigation systems they could be the land owners in the command area. Second, there are position rules about the appointment of monitors or guards to ensure compliance. Third, there are allocation rules which for irrigation could be a fixed percentage of the available water, a fixed time slot for each user or a fixed order of use. Fourth, there are information rules about public knowledge on resource availability, infractions and so on. Fifth, there are aggregation rules which are essentially rules about how decisions can be made or disputes resolved. Sixth, there are fiscal rules about cost sharing or labour obligations for maintenance. Seventh, there could be scope rules, for example about what the water can be used for.

The base case is where there are no rules and access to the commons is a free for all. This is the case made famous 40 years ago by Garret Harding in his seminal work, The Tragedy of the Commons. This state of nature is more or less what prevails for most global commons, including notably the atmosphere.

But at a more local level communities do develop rules or are given them by public agencies. Apart from the comparision of community-made and agency-made rules, Ostrom analyses how the rules are shaped by external conditions like the bio-physical environment and the attributes of the community. Rules remain tentative in that the participants evaluate outcomes and modify rules in response to the evaluation. This is what leads her to make a powerful case for avoiding a “monoculture” of rules that impose standard institutional patterns in diverse ecological and social circumstances.

An institutional approach to common property resources that focuses on rules that define rights and responsibilities is much richer for policy purposes than standard micro economic analysis leavened by some consideration of externalities. The one difficulty I have is the fuzziness of the boundary that defines the resource and the community of concern. How a water body or a forest or a hill slope is used affects not just the land owners or residents in the area but many others including unborn future generations. How can a decision making structure that is community-based take account of this wider impact?

All of these issues will be explored in a major global conclave of researchers at Hyderabad in January 2011.# Hopefully, the Nobel for Elinor Ostrom will stimulate Indian social scientists to join in this exciting exploration. Even more importantly, one hopes that the government wakes up and starts understanding and strengthening community control and management of common property resources.

Tailpiece: A few days before the Economics Nobel, the Peace Nobel was given to President Obama, among other things, for the belief that “the USA is now playing a more constructive role in meeting the great climatic challenges the world is confronting.” Ironically, this announcement came just about the day when the USA renounced any notion of historical responsibility and rejected any international obligation to cap its use of the most important of the global commons. Maybe Obama should talk to Ostrom and test the validity of the US stance on climate change against the standards of rule-based management of the commons developed by Nepali peasants.

*Elinor Ostrom, How do Institutions for Collective Action Evolve, Fourth Lecture in the Golden Jubilee Series, Institute of Economic Growth, Delhi, October 2008.
#For further information see http://iasc2011.fes.org.in/