A lot of data interpreted by the right kind of theory (see E&E III) was required for Lin to identify the eight ingredients that enable groups to manage their own affairs. A warning is in order before I proceed: After you learn them, you are likely to think “Of course! Aren’t these obvious?” The answer is “Only in retrospect”. The ingredients did not emerge from neoclassical economic theory, a long intellectual journey was required for Lin to discover them, and all successful explanations, obvious or not, must be understood in terms of a formal theoretical framework.
Without further ado, here is Lin Ostrom’s recipe for success, taken from the final chapter of her book Understanding Institutional Diversity.
1) Clearly Defined Boundaries. The identity of the group and its rights to the common resource must be clearly delineated.
2) Proportional equivalence between benefits and costs. Members of the group must negotiate a system that rewards members for their contributions. High status and other disproportionate benefits must be earned. Unfair inequality poisons collective efforts, as richly documented by Richard Wilkinson and Kate Pickett in their recent book The Spirit Level.
3) Collective-choice arrangements. Group members must be able to create their own rules and make their own decisions by consensus. People hate being told what to do but will work hard for group goals that they have agreed upon.
4) Monitoring. Managing a commons is inherently vulnerable to free-riding and active exploitation. Unless these locally advantageous strategies can be detected at relatively low cost, the tragedy of the commons will occur.
5) Graduated sanctions. Transgressions need not require heavy-handed punishment, at least initially. Often gossip or a gentle reminder is sufficient, but more severe forms of punishment must also be waiting in the wings for use when necessary.
6) Conflict resolution mechanisms. It must be possible to resolve conflicts quickly and in ways that are perceived as fair by members of the group.
7) Minimal recognition of rights to organize. Groups must have the authority to manage their own affairs. Externally imposed rules are unlikely to be adapted to local circumstances and violate ingredient 3.
8) For groups that are part of larger social systems, there must be nested enterprises. The previous ingredients work best in relatively small groups. Society at a larger scale must be multicellular, with groups interacting with groups, often in multiple layers.
Extensive research and analyses of real-world groups have shown that when these ingredients are met, groups manage their own affairs better than any other method, in part because only they are attuned to their local environmental conditions. When the ingredients are lacking, then either the tragedy of the commons results or inefficient centralized solutions must be imposed.
If the ingredients strike you as obvious in retrospect, ask yourself how many public policies are based upon them. Lin and her colleagues document many examples in which public policies get in the way. Intriguingly, liberal and conservative policies are prone to fail in different ways. Lin’s recipe for success if a vigorous hybrid of liberal and conservative principles…