Friday, December 23, 2016

The Ostrom Commons vs. the Smithian Market

Can a well-regulated commons as described by Elinor Ostrom replace the market? The problem is one of scale. A well-regulated commons only works if you literally know everyone participating in the commons. It cannot really work with strangers, and that's where the market shines.

More, for the commons to work, you have to have some sort of enforceable punishment. In the market, if you don't like what you're being offered, you can withdraw participation. Those are two quite different proposals, although market withdrawal is too often mistaken for punishment. Any harm from withdrawal is coincidental to the withdrawal, while punishment is direct harm in response to a perceived harm.

Those who think that such regulated commons are superior to the markets seem to "miss" on some psychological level the kinds of social interactions one finds in a family or a tribe. What they are also missing is the fact that, as observed above, well-regulated commons don't scale as well as markets. This doesn't mean that there is a place for such commons. There clearly is any time there is difficulty in establishing property rights (like wild animals that have a bad habit of moving from one area to another). So while a well regulated commons is a great development in response to some very specific property rights issues, it cannot replace the market---any more than the market can replace the coordination problems solved by the Ostrom Commons.
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