Week 4 - BEYOND STATES AND MARKETS Flashcards
What is the dualistic opposition discussed in the context of institutional arrangements?
Market institutions vs state institutions
This perspective overlooks alternative institutions in ‘civil society’.
What is the ‘tragedy of the commons’?
Over-use and excessive depletion of common property resources (CPRs)
Examples include communal grazing lands, lakes, and inshore fisheries.
What are the defining characteristics of common property resources (CPRs)?
- Property rights held collectively by a group
- Rivalrous consumption
Rivalrous means that one agent’s consumption reduces availability for others.
What negative externality arises from the use of CPRs?
MSC of using a CPR > MPC of using a CPR
This leads to overconsumption of the resource.
What is a positive externality in the context of CPRs?
MSB of investment > MPB of investment
This causes under-investment in CPRs.
What does ‘Defect’ mean in the context of managing a CPR?
Over-utilizing the resource and failing to invest in its upkeep
This is contrasted with ‘Co-operate’, which involves moderating consumption.
What is a Nash equilibrium in the context of the tragedy of the commons?
(Defect, Defect)
This outcome is Pareto inefficient and reflects a conflict between individual and collective rationality.
According to Ostrom, how do people respond to the tragedy of the commons?
By devising rules to manage resources effectively
This challenges the notion that individuals are passively accepting their circumstances.
What is the Institutional Analysis and Development (IAD) framework?
A theoretical framework used to explain successful management of CPRs
Central to this framework is the concept of ‘action arenas’.
What is an ‘action situation’?
The social space where individuals interact
Interactions are structured by various social rules.
What are position rules in the context of CPRs?
Specify a set of positions and how many actors may hold each one
Examples include ‘authorised user’ and ‘monitor’.
What do boundary rules specify?
How actors are to be chosen to enter or leave positions
This controls access to the resource.
What is the significance of authority rules?
They specify actions assigned to a position
Includes how much of the resource authorised users are allowed to harvest.
What do aggregation rules determine?
How the decisions of actors are mapped to outcomes
Can involve majority or unanimity rules.
What is the role of information rules?
Specify channels of communication among actors
They dictate what information must or must not be shared.
What are operational rules?
Regulate everyday decisions on resource use and maintenance
They include rules on punishment for violations.
What is the difference between local CPRs and global CPRs?
- 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.
What is ‘co-production’ in the context of public services?
The role of private individuals in producing public services
Users often co-produce services, breaking down traditional producer-consumer divisions.
How does Ostrom view human motivation in resource management?
Human beings have complex motivations beyond self-interest
This includes norms of proper behavior and other-regarding preferences.
What is a polycentric system?
A system with multiple decision-making centers, each with limited autonomy
This allows for experimentation with different combinations of rules.
What does Ostrom argue about the categories of ‘states’ and ‘markets’?
They are insufficient to capture the complexity of resource allocation
A more elaborate set of categories is needed.
What is the nature of human motivations according to the text?
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).
What is the first-order function of institutions?
Concerns how particular institutions (state, market, civil society) solve various kinds of social problems.
What is the second-order function of institutions?
Concerns the overarching institutional framework within which decisions are made about how to solve first-order problems.
According to Knight and Johnson, what should be the priority in dealing with second-order problems?
Democracy (understood as public discussion/debate, with majoritarian collective decision-making).
What characterizes democratic decision-making according to Knight and Johnson?
A higher level of ‘reflexivity’ enabling reflection on non-institutional arrangements.
What are the epistemic arguments made by Knight and Johnson regarding democracy?
Democratic debate is best for addressing bounded rationality due to its inclusiveness, allowing a variety of opinions to be heard.
What is the incentive compatibility argument made by Knight and Johnson?
Citizens have a stake in the right decisions being made, ensuring effective monitoring and assessment of first-order institutions.
What do Knight and Johnson argue about decentralized decision-making processes like markets?
They argue that people focus on individual outcomes and ignore wider social outcomes, making it difficult to monitor and assess institutions.
What is the key critique Knight and Johnson have about markets?
Markets cannot be expected to reflexively monitor their own effective operation.
How do democratic institutions differ from other institutional forms according to Knight and Johnson?
Democratic institutions enable a level of reflexivity unavailable in other institutional forms.
What is Paul Dragos Aligica’s stance on second-order decisions?
They should be made within a polycentric structure rather than being monopolized by a central democratic institution.
What are the epistemic benefits of a polycentric system?
Experimentation reduces the risk of systemic error and facilitates learning from solutions to first-order problems adopted by other groups.
What does polycentricity imply about the choice of rules and institutions?
Rules/institutions are chosen by those directly subject to and affected by them, who have the strongest incentive to get the rules right.
What debate is present in the K&J-Aligica discussion?
The debate concerns the choice of the overarching institutional framework for making decisions about first-order problems.
