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humans craft to govern, provide, and manage public goods and common-
pool resources.
B. Two Types of Goods
in his classic definitional essay, Paul samuelson (1954) divided goods
into two types. Pure private goods are both excludable (individual a can be
excluded from consuming private goods unless paid for) and rivalrous
(whatever individual a consumes, no one else can consume). Public goods
are both nonexcludable (impossible to keep those who have not paid for a
good from consuming it) and nonrivalrous (whatever individual a consumes
does not limit the consumption by others). this basic division was consistent
with the dichotomy of the institutional world into private property exchanges
in a market setting and government-owned property organized by a public
hierarchy. the people of the world were viewed primarily as consumers or
voters.
C. One Model of the Individual
the assumption that all individuals are fully rational was generally accepted
in mainstream economics and game theory. fully rational individuals are
presumed to know (1) all possible strategies available in a particular situation,
(2) which outcomes are linked to each strategy given the likely behavior of
others in a situation, and (3) a rank order for each of these outcomes in
terms of the individual’s own preferences as measured by utility. the rational
strategy for such an individual in every situation is to maximize expected
utility. While utility was originally conceived of as a way of combining a diver-
sity of external values on a single internal scale, in practice, it has come to
be equated with one externalized unit of measure – such as expected profits.
this model of the individual has fruitfully generated useful and empirically
validated predictions about the results of exchange transactions related to
goods with specific attributes in a competitive market but not in a diversity
of social dilemmas. i will return to a discussion of the theory of individual
behavior in section 7a.
2. early efforts to develoP a fUller UnderstandinG of
coMPlex hUMan systeMs
the mid-twentieth-century world views of simple systems have slowly been
transformed as a result of extensive empirical research and the development
of a framework consistent with game-theoretical models for the analysis of a
broad array of questions.
A. Studying Polycentric Public Industries
Undertaking empirical studies of how citizens, local public entrepreneurs,
and public officials engage in diverse ways of providing, producing, and
managing public service industries and common-property regimes at
multiple scales has generated substantial knowledge that is not explained
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by two models of optimal organizational forms. vincent ostrom, charles
tiebout, and robert Warren (1961) introduced the concept of polycentricity
in their effort to understand whether the activities of a diverse array of
public and private agencies engaged in providing and producing of public
services in metropolitan areas was chaotic, as charged by other scholars – or
potentially a productive arrangement.
‘Polycentric’ connotes many centers of decision making that are
formally independent of each other. Whether they actually function
independently, or instead constitute an interdependent system of
relations, is an empirical question in particular cases. to the extent
that they take each other into account in competitive relationships,
enter into various contractual and cooperative undertakings or have
recourse to central mechanisms to resolve conflicts, the various political
jurisdictions in a metropolitan area may function in a coherent manner
with consistent and predictable patterns of interacting behavior. to
the extent that this is so, they may be said to function as a ‘system’.
(v. ostrom, tiebout, and Warren 1961: 831–32)
drawing on the concept of a public service industry (Bain 1959; caves
1964; v. ostrom and e. ostrom 1965), several studies of water industry
performance were carried out in diverse regions of california during the
1960s (v. ostrom 1962; Weschler 1968; Warren 1966; e. ostrom 1965).
substantial evidence was found that multiple public and private agencies
had searched out productive ways of organizing water resources at multiple
scales contrary to the view that the presence of multiple governmental units
without a clear hierarchy was chaotic. further, evidence pointed out three
mechanisms that increase productivity in polycentric metropolitan areas: (1)
small- to medium-sized cities are more effective than large cities in monitor-
ing performance of their citizens and relevant costs, (2) citizens who are
dissatisfied with service provision can “vote with their feet” and move to
jurisdictions that come closer to their preferred mix and costs of public
services, and (3) local incorporated communities can contract with larger
producers and change contracts if not satisfied with the services provided,
while neighborhoods inside a large city have no voice.
in the 1970s, the earlier work on effects of diverse ways of organizing the
provision of water in metropolitan areas was extended to policing and public
safety. We found that while many police departments served 80 metropolitan
areas that we studied, duplication of services by more than one department
to the same set of citizens rarely occurred (e. ostrom, Parks, and Whitaker
1978). further, the widely held belief that a multiplicity of departments
in a metropolitan area was less efficient was not found. in fact, the “most
efficient producers supply more output for given inputs in high multiplicity
metropolitan areas than do the efficient producers in metropolitan areas
with fewer producers” (e. ostrom and Parks 1999: 287). Metropolitan areas
with large numbers of autonomous direct service producers achieved higher