Milestone Review: Broad Research Context

This is a section out of a milestone review paper I am piecing together. Any questions or feedback are both welcomed and appreciated. 

The broad context of this work is innovation economics, with influences stemming from institutional, evolutionary and complexity economics. These compatible and emerging fields are explored in the modern context of Australian innovation policy; creating a refreshing perspective in a highly controversial arena. The outcomes of the work have significant implications for the Australian Innovation System, and the perspective through which we view innovation policy generally.

The three most influential scholars are J. Schumpeter, E. Ostrom, and F. Hayek. Schumpeter (1942) placed innovation and entrepreneurial activities into the centre of determinants of economic change. Most important was his incorporation of an evolutionary focus, through the now famous ‘gale of creative destruction’. Schumpeter’s legacy is continued throughout this dissertation, with innovation as a continual process of trial-and-error that drives economic change.

In The Use of Knowledge in Society, Hayek (1945) stressed the importance of local knowledge when making economic decisions – re-framing the economic problem as one of knowledge coordination, while simultaneously generating concern over central planning interventions. While Hayek marvelled at the efficiency of the institution of the market in coordinating local knowledge, we switch focus to commons institutions. Innovation is a problem in coordination of innovation resources (including knowledge), facing similar institutional planning challenges.

Ostrom (1990), through study of natural resource governance, demonstrated how the commons did not always result in tragedy, if a complex, bottom-up institutional setting for collective action evolves. This revealed how the commons could be, and are being, utilised as a voluntary, self-organising institution for governance of social dilemmas.

We hypothesise that innovation commons are emerging through a complex collection of rules and governance by citizens – to avoid the social dilemmas inherent in innovation. That is, innovation is occurring through an evolutionary process (Schumpeterian), that can be analysed through institutions where the governance rules for collective action are developed from the bottom-up (Ostrom), because these institutions appear to be very efficient at coordinating and mixing knowledge in the commons (Hayek).

Three Overly-Simplistic Models of the Commons

Below is a short discussion of three influential models on the commons; (1) The Tragedy of the Commons; (2) The Prisoners Dilemma Game; and (3) The Logic of Collective Action. Following this, I discuss why these overly-simplistic models have little traction in reality, and how unfortunately public policy was, and remains, strongly influenced by their legacy. Public policy should have no place for simplistic analogies. The literature is moving on, public policy isn’t.

The Tragedy of the Commons

Unfortunately, Hardin (1968) has become the initial model of thought for economists considering common property. Combining an ‘open to all’ pasture with self-interested herders, the model predicts unavoidable depletion[1]. This eloquent passage describes the majority opinion for many decades:

“Ruin is the destination to which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons” (Hardin 1968, p 1244)

Twelve years earlier, similar concerns were also expressed:

“Wealth that is free for all is valued by no one because he who is foolhardy enough to wait for its proper time of use will only find that it has been taken by another” (Gordon 1954, p124)

The Prisoners’ Dilemma Game

The Prisoner’s Dilemma Game[1] has been an important model for formalising Hardin’s Tragedy into game theoretic terms. The easy tractability of the PD game has led it to become the most famous social dilemma. In the most elementary model, the players in the game were assumed to be non-cooperative, possess complete information, and not repeat games[2]. These simplistic assumptions result in a third-best, pareto-inferior outcome[3]. This model has remained an important step on the path to examining the concepts of rationality, group welfare and the market. This problem has fascinated scholars, leading to a huge number of published articles on the topic. Many of these paper enforce differing assumptions, with vastly more positive outcomes. Unfortunately, most only read the most elementary model.

The Logic of Collective Action

Olson (1968) explored the relationship between individual and group preferences, introducing the challenges of human organisation through the ‘free-rider’ problem. Olson explores the link between self-interested individuals and their quest to pursue joint welfare. Although the work as a whole is considered pessimistic, it provides optimism through introducing the impact of size, and the level to which defecting is visible, on group ability to pursue common outcomes. The relationship between individual and group preferences is best described below:

“Though all of the members of the group … have a common interest in obtaining this collective benefit, they have no common interest in paying the cost of providing that collective good. Each would prefer that the others pay the entire cost, and ordinarily would get any benefit provided whether he has borne part of the cost or not.” Olson (1968, p21)

Public Policy

The three models above are simplistic conceptualisations of an extremely complex problem. Yet, they have remained influential on public policy. Only viewing these widely cited models, the commons are the unfavoured third institutional solution.

The ‘default’ move for policy makers when encountering common property is to develop private or public solutions to avoid this tragedy. These are achieved by changing the underlying institutions; including the implementation of private property rights to separate out the group interests, or by using coercion to centralise rights into various authoritative organisations.

The simplicity of the three models presented above provides a fantastic concept for the classroom. Yet, they are no basis for public policy. The assumptions remain inadequate in a complex and interconnected world.

As a whole, these models form an extremely sparse view of the commons (Ostrom, 2007).  Hess and Ostrom (2006, p11) describe four particular aspects that do not transfer to reality:

“… (1) [Hardin] was actually discussing open access rather than managed commons; (2) he assumed little or no communication; (3) he postulated that people act only in their immediate self-interest… ; (4) he offered only two solutions to correct the tragedy – privatization or government intervention.” 


[1] The game was developed in the early 1950s by A. W. Tucker, see Cunningham 1967)

[2] See Dawes (1973, 1975)

[3] Each player with defect on cooperation using their dominant strategy, resulting in a collectively non-rational outcome from individually rational strategies.


[1] Aristotle and Hobbes were among earlier scholars to observe this tragedy, yet it was Hardin’s parable that gained traction.

Confirmation Research Abstract/Brief Summary

I’m finally putting together a research proposal for my Confirmation of Candidature. I thought I would share. Please note, this is a preliminary draft.

Innovation is widely considered to be produced in suboptimal quantity; subsequently being characterised as a market failure. Government responses have led to externally imposed solutions dichotomously sitting between privatisation and public funding. Innovation is a coordination problem through uncertain trial-and-error; a problem where private and public solutions have widespread costs. We hypothesise that innovation resources may be pooled under common property where the institutional structure and governance rules allow efficient mixing of market information and technology in the pool; the ‘innovation commons’.

Are the commons are once again being accepted uncritically as a remorseless tragedy? Public policy presumptions over individuals forming efficient collective-action institutions have been misguided in the past, we ask whether they are once again. To do so, we aim to address why these innovation commons are emerging, the governance rules on which they are based, and how findings may be incorporated into Australian innovation policy. To seek this new perspective within innovation economics we must draw from numerous fields. These include: institutional economics, collective action governance, evolutionary economics, complexity economics and Hayekian knowledge coordination.

The potential of commons as an institutional solution to innovation has not been addressed generally or formally in the literature. This forms a significant place for addition both to the academic literature and practical policy application. The shaping of the Australian innovation system faces significant challenges in incentivising innovation into the future; forming our motivation.

The work is based on both an empirical and theoretical nature. While the majority of the analysis will utilise Elinor Ostrom’s Institutional Analysis and Development (IAD) framework to analyse case studies, this needs a theoretical influence.  The IAD framework provides guidance in applying case studies to situations where a complex mixture of rules, actions and outcomes may appear overwhelming. The IAD will be applied in a meta-analysis over two main case studies: hackerspaces and open science. Using the findings from these case studies, the thesis will provide a theoretical contribution to the literature in a modified IAD. This will take into account the additional complications when mixing innovation resources throughout the innovation process. This will concisely add to the body of existing literature surrounding commons, institutions and innovation.

Adam Smith on Cooperation

There is a tendency in economics to focus on one particular aspect of Smith’s broad legacy. This stems from the following widely quoted passage:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.

Smith (1776, Chapter 2) – The Wealth of Nations

This is the foundation of much of the economic work over the 19th and 20th century; self-interested individuals achieving their own ends.

A little quoted passage, from earlier in the same paragraph, greatly changes the context:

In a civilised society he (man) stands at all times in need of the co-operation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons.

- Smith (1776, Chapter 2) – The Wealth of Nations

Here, Smith is exploring the idea of widespread cooperation. The market mechanism is one institution through which we can achieve this cooperation, yet there are also many others. Smith proposed that the market mechanism is efficient for coordinating the trading between strangers – where personal cooperation is not feasible. Coase (1976) further explores this:

… Adam Smith’s argument for the use of the market for the organisation of economic activity is much stronger than it is usually thought to be. The market is not simply an ingenious mechanism, fueled by self-interest, for securing the co-operation of individuals in the production of goods and services. In most circumstances it is the only way in which this could be done. Nor does government regulation or operation represent a satisfactory way out …

The great advantage of the market is that it is able to use the strength of self-interest to offset the weakness and partiality of benevolence, so that those who are unknown, unattractive, or unimportant, will have their wants served.

- Coase  (1976, p 544) – Adam Smith’s View of Man

This implies that the market is an efficient mechanism where significant trust cannot be acquired through individuals. This is important considering the current ways in which we are coordinating in the commons based on trust and reciprocity, where the institutional governance rules are adequate.

‘Promises to Keep: Technology, Law and the Future of Entertainment’ – William Fisher (2004) – Chapter 6 Summary and Review

I’m currently taking part in CopyrightX. Today I present both a review and summary of one of the readings by William Fisher (2004) - ‘Promises to Keep: Technology, Law and the Future of Entertainment’ – Chapter 6: An Alternative Compensation System.

Incentives are misaligned in innovation. This stems from two concepts; (1) ideas are public goods by nature, (2) innovation and creative acts have significant positive spillover effects. Public goods are those which are both nonrivalrous and nonexcludabile in nature. This leads to appropriability problems for potential creators. Combining this with financing concerns, inherent uncertainty and high fixed costs, leads to socially suboptimal levels of both innovation and creativity. This is the innovation problem. Note – While this social dilemma does not solely relate to innovation, this will be the focus of the discussion today.

This innovation problem has been debated for centuries, rendering several government solutions. Fisher (2004) focuses on five of these; (1) government supply of the goods themselves, (2) government paying private actors to supply the goods, (3) concept of post-hoc prizes or rewards, (4) granting of exclusive rights to reduce appropriability concerns, (5) assisting private parties to appropriate through increasing the excludability of the goods (either directly or indirectly, such as trade-secret law).

These solutions form the innovation system. They are all government-imposed institutional solutions to the innovation problem, and can loosely be placed into either private (such as intellectual property) or public (such as Research and Development subsidy). It is important to note from the outset that the focus of the innovation system is on increasing incentives for creativity while not reducing the substantial benefits of open or cumulative innovation.

Today, we will focus on variants of the fourth strategy, which incorporates copyright law. This institutional solution represents significant debate in the literature. And, based on this, Fisher (2004) suggests a “fundamental change in approach.”
More specifically he “… proposes that we replace major portions of the copyright and encryption-reinforcement models with a variant of the third strategy – a governmentally administered reward system.”

The system, in a crudely brief outline, runs like this. Instead of providing exclusive rights of individuals to sell their work, authors would register new works with the Copyright Office. From here, the digital distributions of the files would be tracked (various means are suggested). Government taxation (again, various means) would provide funds. Compensation would be distributed based on numerous criteria (you guessed it… lots of criteria). Theoretically, the result would be lower costs for consumers (always good), more reliable compensation for artists (providing incentive to create) and the pathway for cumulative innovation and derivate use of works (the major disadvantage of providing exclusive rights). On the other hand, this system would be an extremely complicated one, with distorted behavior and inability of artists to control their products in the public domain. And, from a libertarian economists’ view – is inherent with regulatory capture/rent-seeking, public choice pitfalls and other forms of government failure (unavoidable when moving away from a market system).

While my latter comments may suggest this system is fraught with danger – it should be taken more as a form of constructive criticism. The copyright system is in need, undeniably, of revision, and few innovative solutions such as this come along. This, I hope, is a broader movement away from thinking of the ‘optimal level of copyright protection’ towards a re-vamp of the system as a whole.

The remainder of the Chapter is focused on the more specific details of the Alternative Compensation System. I will only briefly explore the sections – you should do so yourself, here.

Registration – One of the essential elements of the system is a way in which to track the digital copies of songs and movies. Fisher suggests some type of “unique and durable digital fingerprint”. Similarly, a centralized registration system is suggested – possibly the current Copyright office. This would involve submission over the internet, with a small registration fees, and the registration of details such as the percentage of material from other registered recordings.

Taxation – Money is raised through one of two means; (1) increases in federal income tax, (2) taxation of the goods and services used in gaining access to music and film. These both have benefits and costs, yet analysis suggests the first would be the better of the two approaches. The former (income tax) has two main benefits. First, it is efficient (only on the basis it does not require significant additional administrative costs). Second, distortions are claimed to be less as the deadweight losses are moderate in scale. On the negative side, tax increases are inherently politically unpopular.  The second solution focuses on taxing goods and services such as “… (1) equipment used to make copies of digital recordings; (2) media used to store such copies; (3) services used to gain access to the Internet, either to download files or to stream recordings; and (4) peer-to-peer systems or other services used to share files.” One of the most prominent potential tax targets is internet access services themselves, as well as the online services that assist in locating or sharing creative content. Advantages and disadvantages of these methods are both complex and widespread. Fisher suggests that this is likely to be more politically popular, and would be perceived as more voluntary. Negatively, the approach is cumbersome and riddled with adminisstrative costs.

Measuring Value – When distributing money, the obvious solution rests on the basis of objective. Fisher suggests that “… our objective would be to make each artist’s share of the pot proportional to the total value that, during a given year, consumers derived from his or her creations.” We need to continually adhere to this for three reasons; (1) proivision of appropriate signals to authors, (2) fairness, and (3) to avoid the pitfalls of government failure in judging the benegfits to society. In the current system, we determine value through the price system. The most basic technique in the new system would be to rely on the frequency of downloads. Theoretically, it is much easier to determine the number of downloads compared to the number of times a piece is enjoyed by any given individual. Another issue is that if we were to count the number of downloads, it would “…make it discouragingly easy to unscrupulous people to “game” the system.” Fisher suggests the most promising alternative it to enact some form of sampling of the population (much like that currently employed in television ratings, yet on a much larger scale). Further, discussion and adjustments for the duration of various works is warranted. Even further, we need to ask whether frequency of consumption has a strong correlation with enjoyment, and hence benefit to society. In response to this, Fisher suggests a voting system.

Derivative Works – The proposed system would make it possible “to divide the stream of revenue attributable to such a derviative or composite recording among the various contributors to it.” The division would be arbitrary and problematic, yet is nonetheless theoretically possible.

Following the discussions above, Fisher goes into length over the merits and demerits of the proposed system. The most exciting, for myself, is this:

The proposed system would help us to reconcile two goals long considered to be in conflict – facilitating cumulative innovation, and ensuring that pioneers are adequately compensated - p36

As I mentioned earlier – current discussions in copyright tend to focus on a continuum of balancing these two objectives, Fisher tries to reconcile them.

Why I find Innovation so Intriguing – Ideas as Recipes

Today I very briefly explain why I find innovation economics so intriguing, through a discussion of the work of Paul Romer throughout the late 1980s and early 1990s. You can find some great information in this EconTalk, as well as this EconTalk and his latest TED talk regarding Charter Cities.

Paul Romer (1990) – Endogenous Technological Change – refocused our economic lens. Previously, Neoclassical economics regarded capital accumulation and savings as the primary determinants of economic growth. That is, through an optimal savings rate, we would accumulate more and more capital (physical capital), and this would increase economic growth.

There were a number of issues with this, yet I wish to focus on one: steady-state of growth. This was true for two reasons. Firstly, because of the various assumptions regarding savings and capital accumulation, economies eventually reached a steady state – that is, all countries would reach their full potential of growth, and stop growing. Secondly, we would see all economies converge over time.

The data disagrees, and so did Romer.

Romer said something else was important – ideas and knowledge. Throughout his work, he uses the metaphor of recipes.

In our world, we have a certain number of scarce resources. Economic growth occurs when we take these resources and make them into something more valuable. The resources are the ingredients, and the ideas and the recipes.

From his 1993 paper:

“The most important lesson from the study of Research and Development, economic growth, and the history of technology is that there are more ways to arrange the objects of the physical world than humans can possibly imagine.”

Further, from this article:

“To get some sense of how much scope there is for more such discoveries, we can calculate as follows. The periodic table contains about a hundred different types of atoms, which means that the number of combinations made up of four different elements is about 100 × 99 × 98 × 97 = 94,000,000. A list of numbers like 6, 2, 1, 7 can represent the proportions for using the four elements in a recipe. To keep things simple, assume that the numbers in the list must lie between 1 and 10, that no fractions are allowed, and that the smallest number must always be 1. Then there are about 3,500 different sets of proportions for each choice of four elements, and 3,500 × 94,000,000 (or 330,000,000,000) different recipes in total. If laboratories around the world evaluated one thousand recipes each day, it would take nearly a million years to go through them all. “

This is why I’m an innovation economist. I believe, following Romer, that our focus should be on innovation, new ideas, knowledge accumulation and human capital.

Why the best economists are not ‘economists’

The forefront of economic research is coming from outside economics. This is quite interesting, and highly suggestive of a deeper problem.

Why do we continually get advances in economic thought from psychology, biology, neuroscience and law?

Apart from the fact these professions obviously have a whole body of literature which we can appropriate, there’s something else going on.

The benefit is not necessarily their content. It is their way of thinking.

By analysing through the lens of a biologist, psychologist or lawyer, we step outside our constricting neoclassical shoes.

If we focus on equilibrium, we are engineering away from disequilibrium. If we are maximizing functions, there must a calculable function. If we assume rational choice theory, then unexplained decisions are irrational.

What if ‘disequilibrium’, ‘function’ maximization, and ‘irrational’ decisions are the norm, not the exception?

We’ve already framed the problem before we look at the evidence. 

If we stay in the neoclassical school of thought, we are blinded.

Unfortunately, public policy and school curriculum tend to be behind the times.

If we teach economic undergraduates (and even high school students) neoclassical economics for their first years of education, of course they will be biased. If they learn that the key is engineering the economy, or maximizing functions, nothing else will live up. If they learn that decisions are rational, they spend their productive time rationalizing irrational decisions.

Decades of research have shredded the neoclassical doctrine.

I’m not denying our young students need to learn the intricacies of technical economics (although, this is mainly for signalling). Yet, this should not be given as the only solution to our problems (let alone the fact they’ve been introduced to the wrong problem)

I’m sure we could have a budding new flow of economists if we got them to read new institutional texts (such as Institutional Economics: Property, Competition, Policies by Kasper, Streit and Boettke).

Or, an even more radical suggestion, maybe young economists could be taught to read books that are not textbooks. Crazy times.

Commons, Evolution and Multilevel Selection Theory

evolution-1Recently, the Journal of Economic Behavior & Organization released a special issue (download for free, for a limited time). Today, I want to focus on one particular article – “Generalizing the core design principles for the efficacy of groups” – Wilson, Ostrom and Cox (2013) – found here. This is a great article that takes the common pool design rules (Ostrom, 1990) and generalises them into an evolutionary framework. This generalisation is possible because the design principles flow not just from political theory, but from “the evolutionary dynamics of cooperation in all species and the biocultural evolution of our own species” (p30). Attempting to generalise these principles in an evolutionary context is important – if possible, they may gain applicability wherever human groups must cooperate to achieve shared goals (isn’t that almost everything)?

Firstly, here’s a small summary of the evolution of commons literature.

Hardin’s (1968) paper is the obvious starting point for any discussion of the the commons. See my post on this paper here.  His work, in the time when the Adam Smith ‘invisible hand’ was widespread, coined the ‘tragedy of the commons‘. Simply, the tragedy of the commons suggested that due to unwavering self-interest, common pool resources suffer a tragedy of depletion through over use. This stems from the attributes of rivalry and non-excludability. At the time, the only solutions to this social dilemma were seen as privatization (enforcing private property rights) or top-down restrictive regulation. Thankfully, these days, we know there are other options.

Ostrom’s (1990) book, revolutionised the way we view common pool resources. Governing the Commons: The Evolution of Institutions for Collective Action, won Ostrom the 2009 Nobel Prize. The book was a life-long collection of Ostrom’s observations of commons – proposing that sometimes the commons do not suffer in tragedy. When certain conditions are met, institutions of collective action are solving this social dilemma across the world.

Eight design principles were proposed: (1) Clearly defined boundaries. (2) Congruence between appropriation and provision rules and local conditions. (3) Collective-choice arrangements. (4) Monitoring. (5) Graduated sanctions. (6) Conflict resolution mechanisms. (7) Minimal recognition of rights to organise. (8) Nested enterprises. See Ostrom (1990, p 90). Also see Cox et al. (2010) for a more further empirical validity and an extended discussion.

Importantly, these design principles, while not fully developed, lean towards the possibility of  collective action solutions to social dilemmas. Ostrom introduced the importance of institutional governance of common pool resources.

The paper we’re talking about today, takes these rules on step further- continuing the research line, generalising the principles in two distinct ways: (1) the principles follow with the evolutionary dynamics of cooperation in all species, and (2) because of the theoretical generality, these principles have  wider range of application than CPR groups. That is, any situation where “people must cooperate and coordinate to achieve shared goals.”

Wilson et al. (2013) discuss commons from an evolutionary perspective (including game theory). For a starting point, make sure you read about Cultural Selection Theory. While game theory began with decisions framed by self-interested rational actors, it is now often framed as “a Darwinian process in which alternative strategies compete against each other and the most successful strategies increase in frequency in the population.” (p23). Further, any mechanism that causes the more successful strategies to become more frequent through time, relates to evolutionary theory.

The authors propose that multilevel selection theory (MLS) is a useful framework for studying the commons situation in general terms. In the world of MLS, there are evolving populations of individuals, who form into groups in which social interactions occur. Within each group, the process of natural selection “favors the strategies that maximise the fitness of the individuals, relative to other members of the same group.” (p23). That is, if everyone within a group increases equally in fitness, this is neutral to those within the group from the perspective of within-group selection (if these is no cost to the original provider). If group fitness is considered a public good, then if there is a cost to the individual, he is at a relative disadvantage, no matter the gain. And, generally, there is a cost.

Therefore, if we take a strategy that is for the good of the group, yet has no relative individual fitness gain, can it survive? Yes, it can, but we must add a second level to the process. This second level is that the group as a whole will do better, relative to other groups. Importantly, these groups of public good providers (even if less fit than free-riders in other groups), will survive and reproduce more successfully. Note, this doesn’t just apply to survival, it can be equally applied to any function that is trying to be optimised – say profit or number of kills in a hunt.

Therefore, we have multilevel selection – both within-group and between-group. What matters, then, is the relative strength of each level of selection. If one level prevails, we may find a homogeneous population of public good providers, or free-riders. Yet, in reality, we have a mix of types in the total population. The balance between levels of selection can be influenced by a large number of factors. If, then, we can understand some of the factors that cause between-group selection to trump within-group selection, we have a set of design principles for collective action, and governance of the commons.

From MLS theory, we can return to the core design principles first introduced by Ostrom, and view them from an evolutionary perspective. I won’t delve deeply into the design principles here, yet they can be found on page 25 and 26 of the paper.

Overall, these design principles have a combined effect – it makes it very hard for some members to benefit at the expense of others. Therefore, the attention of individuals should theoretically move towards succeeding as a group, rather than an individual.

There is a “striking correspondence between the principles derived by Ostrom for CPR groups and the conditions that caused us to evolve into such a cooperative species in the first place.” It should also be noted that some factors will lead to these design principles being unnecessary (for example, close relatives – see Kin Selection Theory).

It is important to note that the principles are general in nature, and therefore successful cooperation and achievement of objectives of a group requires further principles. These secondary principles must more closely fit the desired goal. But we still need a significant level of generality in the rules. That is, MLS is the general case of cooperation and group interaction, while Ostrom is a more specialised subset. We have learnt this from the hard work that Ostrom completed over the course of several decades. And, we can learn further still.

The paper goes on to describe how we can apply these to two different situations: education and urban neighborhoods  I won’t touch on this here.

Second to this, it is important to see what we can learn (the possibilities). While a glance over the design principles may seem like an obvious list of human behaviours (and, they are, they’ve been evolving for thousands of year) … the fact is, some groups have not adopted these simple rules, and have failed as a result.

I’ll leave you with the final words of the paper:

“We look forward to the day when governance consists of optimizing and coordinating among many spheres of activity from a sophisticated evolutionary perspective”

Me too.

The Tragedy of the Commons – Hardin (1968)

Few scholarly discussions of commons begin without first recognising The Tragedy of the Commons - Garrett Hardin (1968).

Unfortunately, the piece is often cited as holding the wrong solutions to our social dilemmas. In reality, it was revolutionary and groundbreaking. It is one of the most cited and influential works in all of the social sciences. While there are a number of widespread criticisms, the work began a research agenda that still continues today. Here, I will explain why so many important research arms can be traced back to a short six page article. And, although Hardin did not establish design rules as in Ostrom (1990), he eluded to many of them.

Firstly, it is important to note that Hardin lived in a world where the dominant views were Adam Smith: “But he (Adam Smith) contributed to a dominant tendency of thought that has ever since interfered with positive action based on rational analysis, namely, the tendency to assume that decisions reached individually will, in fact, be the best decisions for an entire society.” (p1244). While Hardin eventually derived conclusions from Smithian-rational individuals, he was also one of the first to question the assumption. Questioning this assumption would bring various new areas of economics, including behavioral economics.

Hardin, a biologist, famously told a story of an open pasture. This commons, where herdsmen could appropriate from the pasture as they please, faced a social dilemma (Hardin referred to these as “no technical solution problems”, p1243). Naturally, from the assumption of “each and every rational herdsman sharing a commons” Hardin came to a conclusion: “Ruin is the destination to which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.” (p1244).

Hardin suggested two prescriptions to this tragedy of the commons, privatisation or public regulation: “What shall we do? We have several options. We might sell them off as private property. We might keep them as public property, but allocate the right to enter them.” (p1245). These still remain dominant reactions to common pool resources.

“The laws of our society follow the pattern of ancient ethics, and therefore are poorly suited to governing a complex, crowded, changeable world” (p1245). This indicates Hardin’s understanding of the importance of local knowledge (Hayek, 1945), as well as the fact the world is undeniably complex and changing (a welcome relief from neoclassical beliefs). This is Ostrom (1990) design principle 2 (congruence between appropriation and provision rules and local conditions). 

“The great challenge facing us now is to invent the corrective feedbacks that are needed to keep custodians honest” (p1246). This is both the need for governance, and the more recent mechanism design. This is Ostrom (1990) design principle 4 (monitoring) and design principle 5 (graduated sanctions). 

“The only kind of coercion I recommend is mutual coercion, mutually agreed upon by the majority of the people affected” (p1247). This is Ostrom (1990) design principle 3 (collective-choice arrangements  where most individuals affected by the operational rules can participate in modifying the operational rules).