Week 4 - BEYOND STATES AND MARKETS

Question 1

What is the dualistic opposition discussed in the context of institutional arrangements?

Answer 1

Market institutions vs state institutions

This perspective overlooks alternative institutions in ‘civil society’.

Question 2

What is the ‘tragedy of the commons’?

Answer 2

Over-use and excessive depletion of common property resources (CPRs)

Examples include communal grazing lands, lakes, and inshore fisheries.

Question 3

What are the defining characteristics of common property resources (CPRs)?

Answer 3

• Property rights held collectively by a group
• Rivalrous consumption

Rivalrous means that one agent’s consumption reduces availability for others.

Question 4

What negative externality arises from the use of CPRs?

Answer 4

MSC of using a CPR > MPC of using a CPR

This leads to overconsumption of the resource.

Question 5

What is a positive externality in the context of CPRs?

Answer 5

MSB of investment > MPB of investment

This causes under-investment in CPRs.

Question 6

What does ‘Defect’ mean in the context of managing a CPR?

Answer 6

Over-utilizing the resource and failing to invest in its upkeep

This is contrasted with ‘Co-operate’, which involves moderating consumption.

Question 7

What is a Nash equilibrium in the context of the tragedy of the commons?

Answer 7

(Defect, Defect)

This outcome is Pareto inefficient and reflects a conflict between individual and collective rationality.

Question 8

According to Ostrom, how do people respond to the tragedy of the commons?

Answer 8

By devising rules to manage resources effectively

This challenges the notion that individuals are passively accepting their circumstances.

Question 9

What is the Institutional Analysis and Development (IAD) framework?

Answer 9

A theoretical framework used to explain successful management of CPRs

Central to this framework is the concept of ‘action arenas’.

Question 10

What is an ‘action situation’?

Answer 10

The social space where individuals interact

Interactions are structured by various social rules.

Question 11

What are position rules in the context of CPRs?

Answer 11

Specify a set of positions and how many actors may hold each one

Examples include ‘authorised user’ and ‘monitor’.

Question 12

What do boundary rules specify?

Answer 12

How actors are to be chosen to enter or leave positions

This controls access to the resource.

Question 13

What is the significance of authority rules?

Answer 13

They specify actions assigned to a position

Includes how much of the resource authorised users are allowed to harvest.

Question 14

What do aggregation rules determine?

Answer 14

How the decisions of actors are mapped to outcomes

Can involve majority or unanimity rules.

Question 15

What is the role of information rules?

Answer 15

Specify channels of communication among actors

They dictate what information must or must not be shared.

Question 16

What are operational rules?

Answer 16

Regulate everyday decisions on resource use and maintenance

They include rules on punishment for violations.

Question 17

What is the difference between local CPRs and global CPRs?

Answer 17

• Local CPRs: managed by small communities with monitoring capabilities
• Global CPRs: difficult to manage due to large geographical areas

Local CPRs have better prospects for successful management.

Question 18

What is ‘co-production’ in the context of public services?

Answer 18

The role of private individuals in producing public services

Users often co-produce services, breaking down traditional producer-consumer divisions.

Question 19

How does Ostrom view human motivation in resource management?

Answer 19

Human beings have complex motivations beyond self-interest

This includes norms of proper behavior and other-regarding preferences.

Question 20

What is a polycentric system?

Answer 20

A system with multiple decision-making centers, each with limited autonomy

This allows for experimentation with different combinations of rules.

Question 21

What does Ostrom argue about the categories of ‘states’ and ‘markets’?

Answer 21

They are insufficient to capture the complexity of resource allocation

A more elaborate set of categories is needed.

Question 22

What is the nature of human motivations according to the text?

Answer 22

Humans have complex motivations including narrow self-interest, norms of proper behaviour, and other-regarding preferences

This perspective is discussed in ‘Understanding Institutional Diversity’ (2005: 132, 119).

Question 23

What is the first-order function of institutions?

Answer 23

Concerns how particular institutions (state, market, civil society) solve various kinds of social problems.

Question 24

What is the second-order function of institutions?

Answer 24

Concerns the overarching institutional framework within which decisions are made about how to solve first-order problems.

Question 25

According to Knight and Johnson, what should be the priority in dealing with second-order problems?

Answer 25

Democracy (understood as public discussion/debate, with majoritarian collective decision-making).

Question 26

What characterizes democratic decision-making according to Knight and Johnson?

Answer 26

A higher level of 'reflexivity' enabling reflection on non-institutional arrangements.

Question 27

What are the epistemic arguments made by Knight and Johnson regarding democracy?

Answer 27

Democratic debate is best for addressing bounded rationality due to its inclusiveness, allowing a variety of opinions to be heard.

Question 28

What is the incentive compatibility argument made by Knight and Johnson?

Answer 28

Citizens have a stake in the right decisions being made, ensuring effective monitoring and assessment of first-order institutions.

Question 29

What do Knight and Johnson argue about decentralized decision-making processes like markets?

Answer 29

They argue that people focus on individual outcomes and ignore wider social outcomes, making it difficult to monitor and assess institutions.

Question 30

What is the key critique Knight and Johnson have about markets?

Answer 30

Markets cannot be expected to reflexively monitor their own effective operation.

Question 31

How do democratic institutions differ from other institutional forms according to Knight and Johnson?

Answer 31

Democratic institutions enable a level of reflexivity unavailable in other institutional forms.

Question 32

What is Paul Dragos Aligica's stance on second-order decisions?

Answer 32

They should be made within a polycentric structure rather than being monopolized by a central democratic institution.

Question 33

What are the epistemic benefits of a polycentric system?

Answer 33

Experimentation reduces the risk of systemic error and facilitates learning from solutions to first-order problems adopted by other groups.

Question 34

What does polycentricity imply about the choice of rules and institutions?

Answer 34

Rules/institutions are chosen by those directly subject to and affected by them, who have the strongest incentive to get the rules right.

Question 35

What debate is present in the K&J-Aligica discussion?

Answer 35

The debate concerns the choice of the overarching institutional framework for making decisions about first-order problems.