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Beyond Markets and states: Polycentric
Governance of coMPlex econoMic
systeMs
Prize lecture, december 8, 2009
by
E
linor
o
strom
Workshop in Political theory and Policy analysis, indiana
University,
Bloomington, in 47408, and center for the study of institutional diversity,
arizona state University, tempe, aZ, U.s.a.
contemporary research on the outcomes of diverse institutional arrange-
ments for governing common-pool resources (cPrs) and public goods at
multiple scales builds on classical economic theory while developing new
theory to explain phenomena that do not fit in a dichotomous world of “the
market” and “the state.” scholars are slowly shifting from positing simple
systems to using more complex frameworks, theories, and models to un-
derstand the diversity of puzzles and problems facing humans interacting
in contemporary societies. the humans we study have complex motivational
structures and establish diverse private-for-profit, governmental, and
community institutional arrangements that operate at multiple scales to
generate productive and innovative as well as destructive and perverse
outcomes (north 1990, 2005).
in this article, i will describe the intellectual journey that i have taken the
last half century from when i began graduate studies in the late 1950s. the
early efforts to understand the polycentric water industry in california were
formative for me. in addition to working with vincent ostrom and charles
tiebout as they formulated the concept of polycentric systems for governing
metropolitan areas, i studied the efforts of a large group of private and
public water producers facing the problem of an overdrafted groundwater
basin on the coast and watching saltwater intrusion threaten the possibility
of long-term use. then, in the 1970s, i participated with colleagues in the
study of polycentric police industries serving U.s. metropolitan areas to find
that the dominant theory underlying massive reform proposals was incorrect.
Metropolitan areas served by a combination of large and small producers
could achieve economies of scale in the production of some police services
and avoid diseconomies of scale in the production of others.
these early empirical studies led over time to the development of the
institutional analysis and development (iad) framework. a common
framework consistent with game theory enabled us to undertake a variety
of empirical studies including a meta-analysis of a large number of existing
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case studies on common-pool resource systems around the world. carefully
designed experimental studies in the lab have enabled us to test precise
combinations of structural variables to find that isolated, anonymous indi-
viduals overharvest from common-pool resources. simply allowing commu-
nication, or “cheap talk,” enables participants to reduce overharvesting and
increase joint payoffs, contrary to game-theoretical predictions. large studies
of irrigation systems in nepal and forests around the world challenge the
presumption that governments always do a better job than users in organizing
and protecting important resources.
currently, many scholars are undertaking new theoretical efforts. a core ef-
fort is developing a more general theory of individual choice that recognizes
the central role of trust in coping with social dilemmas. over time, a clear
set of findings from the microsituational level has emerged regarding
structural factors affecting the likelihood of increased cooperation. due
to the complexity of broader field settings, one needs to develop more
configural approaches to the study of factors that enhance or detract from
the emergence and robustness of self-organized efforts within multilevel,
polycentric systems. further, the application of empirical studies to the policy
world leads one to stress the importance of fitting institutional rules to a
specific social-ecological setting. “one-size-fits-all” policies are not effective.
1. the earlier World vieW of siMPle systeMs
in the mid-twentieth century, the dominant scholarly effort was to try to fit
the world into simple models and to criticize institutional arrangements that
did not fit. i will briefly review the basic assumptions that were made at that
time but have been challenged by scholars around the world, including the
work of herbert simon (1955) and vincent ostrom (2008).
A. Two Optimal Organizational Forms
the market was seen as the optimal institution for the production and
exchange of private goods. for nonprivate goods, on the other hand, one
needed “the” government to impose rules and taxes to force self-interested
individuals to contribute necessary resources and refrain from self-seeking
activities. Without a hierarchical government to induce compliance, self-
seeking citizens and officials would fail to generate efficient levels of public
goods, such as peace and security, at multiple scales (hobbes [1651] 1960;
W. Wilson 1885). a single governmental unit, for example, was strongly
recommended to reduce the “chaotic” structure of metropolitan governance,
increase efficiency, limit conflict among governmental units, and best serve a
homogeneous view of the public (anderson and Weidner 1950; Gulick 1957;
friesema 1966). this dichotomous view of the world explained patterns of
interaction and outcomes related to markets for the production and exchange
of strictly private goods (alchian 1950), but it has not adequately accounted
for internal dynamics within private firms (Williamson 1975, 1986). nor does
it adequately deal with the wide diversity of institutional arrangements that