Lecture 07 Class Notes

SET 1

Prisoners dilemma and bargaining

  • decision making is a line along a continuum, with rational model on one end and relational on other end
  • highly stylized rational models: in real life there are things like the free rider problem, market failures, other issues
  • when we put individual rational decisions together, it gets messy and fails
  • rarely do people make decisions strictly individually, but in the context of the collectivity (a multi-person prisoner's dilemma).
  • decisions depend on how the collective comes about

How collective comes about
1. Aggregated - each person makes an individual, rational decision, add them together to get demand function

  • E.g. the market, voting

2. Coordinated

  • E.g. the wave at a football game = spontaneous coordination
  • Collection of individual choices, but the wave is more than an individual choice,each person's decision to stand depends on another's decision to stand
  • Someone has to start it, conceptualize how it will be - but no one commands or incentivizes it
  • E.g. Technology, inventions: Coordinated new thoughts, bring them together, all of a sudden new tech
  • E.g. Financial collapse, run on the banks: People start pulling money back, everyone does it
  • In his common-pool resource example about the Diag, an information booth about soil compaction would start a spark to excite coordinated decision
  • Time is a defining characteristic

3. Institutionalized

  • Instead of sponteneity there is deliberation - takes longer
  • Give and take, explore mutual interests, make a commitment, set up rules
  • Single most distinguishing feature: enduring over periods of time
  • Soil compaction issue
  • Diag example: Talk to construction people to set up a way to put construction areas up better so people don’t have to walk on soil to get around. It's more enduring than informational booth
  • Does not have to have an institution involved at first, have to think this way to create them

*Bellah: The most profound decisions about justice are not made by individuals as such, but individuals thinking within, and on behalf of, institutions

  • World commission on dams. Institution that doesn’t even exist yet but is coming together soon; organized by thinking institutionally to make global dam decisions

What is an institution? Depends on context, definition varies widely. A handshake, coordinated informal non govt work of farmers, or a bank.
Ostrum:
Bella (check out p. 13):
Princen: the rules and procedural norms and principles around which actors/decision makers expectations converge, in a given issue area

  • Rules
  • Procedures
  • Norms
  • Principles

E.g.1 = UM
Actor: student, faculty, staff
Issue area: education/research
Rules and Procedures: Michigan time (may not make sense, but once we all know it, our expectations converge on this rule)
Norms: Should be predictable
Principle: Minimize class conflicts
Nested layers (to understand as an institution, have to understand all layers): subunits within university (business school, SNRE) of UM, UM is imbedded within things like the NCAA, which exists within ‘higher education’
All universities exist within organizations within higher education
Rules V Norms (in some sense, all norms, principles, etc, are rules)
Have to ask what norms, principles, rules, etc is decisions making centered around
Have to understand parts to understand whole, relation of parts to eachother, and how the whole functions
Understanding the human body for example

Identify actors: students faculty and staff.
Issue area: education/research/knowledge generation
Rules and procedures: Michigan time. Once everyone knows it, our expectations converge on that, we all get coordinated and start class 10 after.
Norms: more tricky. Rarely are they explicitly laid out. Start time should be predictable.
Principle :value statement. Should minimize class conflicts.
Nested layers: subunits. Snre, lsa, erb that constitute whole. But the school itself is a part of ncaa and other educational institutions. But overall the school is part of a higher education institution. Broadest level of institution which others are embedded. Cant describe what UM is without describing its subunits.

These categories are arbitrary (rules, norms, principles). rules are more laid out.
Part of lesson-from an inst perspective, how is dec making organized around rules norms, and how are they organized and for whom? Inst view says that whatever parts to the inst is, by analogy, we have heart, lungs etc. a problem with heart, surgeon would just work on heart. But to solve heart problem they may have to work on other parts. Or maybe it is relative to how he lives his life. To understand how the whole system works, you must know how each part works and is related. If you want to understand the whole, in part you have to understand health of parts and relationship of the parts to each other and to the whole. To understand entire body, it is relationships among them. Holistic perspective on organism requires all relationships.

Huerta-aggregation of ind farmers dec? No - if we should think of it like this we would miss how they were able to irrigate for centuries.

E.g. 2 = Huerta
Actors: irrigators
Issue area: water is scare and highly variable
Rules and procedures: in case, tribunal, election, committee, bi annual meetings, etc
Norms: Quantity of water you get depends on amount of land you have, self organize (democratic self regulation)
Principles: Right to water inheres in the land (own land, history of water, you get water), allocations of water follow environmental element (not an amount, but shifting), no waste of water, enforcement should not be punitive (little penalty at first, graduated up
Nested layers: Look at organization in case, fundamental unit is farmers organized

Actors: irrigators.
Issue area: water and it is scarcity and variable.
Rules and procedures: tribunal, monitoring, voting etc.
Norms: right to water inheres in land. If you own land and have history you get water. Quantity is dependent on amt of land. Decide for themselves-democrat self rule. Allocation of water follow env conditions and rainfall patterns-dif from Colorado river allocation-they set fixed amounts and guaranteed. Huerta is smaller scale. Principle of no waste. Enforcement should not be pitted. If someone cheats, they get a little penalty first then gets larger with repeat.
Nested layers: Organized farmers elected own syndic which was embedded in a committee which was organized in tribunal and then there were laws of the state and nation.

Explanation vs. design
Can analyze UM for existing institutions, look at elements of design
Explain the rules and procedures→understand norms and principles
Imagine that the institution didn’t exist
Logically, start at norms and principles (what are goals, how to achieve them), then figure out rules and procedures

Ostrum and Stern: The struggle to control the commons

  • Dry, tedious piece, speaking against tragedy of the commons (well written, exciting piece)
  • 35 years ago, it seems that TotC was inevitable everywhere, wherever the commons was not privately/ government owned
  • It appeared that all actors would be rational and this would lead to the sub-optimal outcome (both defect)
  • In practice, TotC does not occur—if certain conditions are met, people can self organize quite well, communicate effectively, make commitments, cheating is not a big problem, and had pretty good outcomes - no need for total privatization
  • Based on historical, empirical evidence
  • Much easier to find conditions for very small scale dynamics level

Deitz ostrum stern piece:
Dry tedious, social sciencey. Piece they are speaking in rxn to is tragedy. Tragedy is very lively and exciting.
35 years ago it seemed like tragedy was inevitable everywhere (where there wasn’t private prop or outside agent). Bc each decision is defecting, free rider is pervasive and only way is to make private or external force. This article goes against that. It is 35 years of research that says tragedy doesn’t occur and when it does its not for reasons that Hardin said. It works in alot of places-if certain cond are met, people tend to self organize well(5 principles). Just opposite ofHardins. It signifies with empirical research that tragedy is not true. Ostrum won a Nobel prize for economics.
Hardins free rider problem still exists, but cond for successful collective action, people can organize and make it work.