Given how I’ve complained about how bad economists are at naming their ideas, I should probably think twice about attempting to give a name to an idea myself. Still, I feel like tempting fate by badly naming an idea from the work of Elinor Ostrom, which I believe generalizes to even broader applications. The bad name I occasionally use (usually when talking to myself) to describe this phenomenon is “the 5-1 error.”
First, a little background. In her fantastic book, Governing the Commons, Elinor Ostrom examines ways of dealing with common pool resource problems. A common pool resource is something which anyone can access, and over which nobody has a well-defined property right. The tragedy of the commons, as described by Garrett Hardin, results in the resource being overused. Think of a pond with a limited fish supply, which can be used by anyone. If I know everyone else can use it, I might want to rush out there now to catch fish before anyone else does. Everyone else has the same idea. Ultimately, the pond becomes totally depleted of fish, and everyone is worse off. Ostrom set out to investigate how people in the real world deal with this challenge.
She lays out five different ways this problem can turn out, described as five different games. Summarized, the list goes as follows:
Game 1: The standard tragedy of the commons unfolds, and the common pool resource is depleted.
Game 2: Central authority is implemented in a way which resembles how regulation works in some textbooks and the minds of some pundits – that is, it effectively achieves its intended aims. The problems are solved, and resources are allocated efficiently.
Game 3: Central authority is implemented, but very poorly. So poorly, in fact, that the outcome is even worse than the result of Game 1.
Game 4: Yet again, central authority enforces rules over the commons, but its mistakes are kept within a narrow enough band that the outcome is better than 3, though not quite as good as 2.
Game 5: The people with direct access to the common pool resource make, monitor, and enforce agreements and contracts among themselves. Over time, these evolve into a unique order to deal with the unique circumstances of that common pool resource.
Ostrom’s goal was to better understand how Game 5 works and how it can arise. She did not believe Game 5 is a panacea capable of solving all collective action problems, or that Game 1 is a nonissue. But she did argue that Game 5 was underappreciated. In a key passage, Ostrom notes one reason Game 5 gets overlooked:
Game 5 is difficult to see in any specific circumstance, because we don’t know in advance what we’re looking for. We may not notice the evolved institutions, and may even undermine them, because we’re too busy searching for designed institutions. That’s a 5-1 error – at least, that’s what I call it. I also generalize the term beyond common pool resource management and extend it to any area where informal institutions are overlooked by those whose understanding is focused entirely on top down, centralized rules.
So, what would be a real-world example of a 5-1 error? In a classic paper called The Fable of the Bees, Steven Cheung identifies one related to externalities. He criticizes the work of J. E. Meade, who argued that beekeeping represents a market failure. Orchard farmers use beehives to pollenate their crops, but at least some bees from one farmer’s hives would travel to and pollinate plants in a neighboring farmer’s crop. Since one farmer can’t feasibly charge another farmer for those pollination services, the market would underprovide for bees.
Or so Meade argued. Cheung pointed out that all sorts of bottom-up customs emerged to deal with this (and other) issues:
So Meade is committing a 5-1 error. He was blind to the informal institutions that developed to deal with the issue because he only understood solutions as coming from explicit regulations. Cheung’s final comment on the results of such an error is well worth pondering:
READER COMMENTS
Matthias
Sep 24 2022 at 7:30pm
Fascinating article! I would have hoped for a few more examples.
Mactoul
Sep 24 2022 at 9:21pm
Perhaps the government itself evolved informally by cooperation between interested parties and hence the standard model of government as stationary robbers is incorrect.
Philo
Sep 28 2022 at 1:08pm
Many governments were established by conquest; also, after its origin a government will continually evolve, and may become something (a stationary bandit) different from what it was at first (perhaps, a power established by voluntary contract).
Jon Murphy
Sep 24 2022 at 10:36pm
Great post. This is what I was getting at in my post on pizza the other day. I had forgotten about the Cheung article. Thanks for reminding!
Todd Ramsey
Sep 25 2022 at 11:12am
I took one undergraduate class from Professor Cheung. I don’t remember the title of the class, but I don’t think he much cared what the title was. He taught that much Economics can be understood by internalizing just three concepts:
The importance of property rights
The importance of property rights
The importance of property rights
OK, make that one concept. Illuminated with widespread examples.
Very interesting guy.
jj
Sep 26 2022 at 11:00am
That’s a concept worthy of a name, but I don’t think 5-1 will catch on!
Nothing really catchy is coming to me either, but I’m thinking along the lines of a “technocratic blind spot”, or “technocratic myopia” — the inability to perceive any solutions other than top-down regulation.
Knut P. Heen
Sep 26 2022 at 1:32pm
I use this example when teaching business students. I tell the Meade story and then ask if anyone has a business idea. Every single year, there is at least one student who suggests that the guy with the trees can pay the guy with the bees for the service. This arrangement seems to work so well that no merger is necessary. If spillovers were rampant, you could simply buy the land around you (without bees the land will be cheap).
Most market failure arguments are simply arguments from ignorance combined with arguments from authority. “I, the great professor X, don’t understand how market participants will solve issue Y, hence my former students (bureaucrats) must step in to solve the problem.”
Hayek called this “spontaneous order”. He had several examples. One was people lining up to get on a buss. Another was how a trail through a forest is created (people use the same path as people before them have used, eventually creating a hiking trail).
Jon Murphy
Sep 27 2022 at 10:32am
I think your comment does a very good job highlighting the very, very fine line I see between market failure and market meddling.
A genuine market failure is a situation where there are trades that could potentially make both sides better off that do not occur for some reason(s).
Market meddling is a situation where the market does not reach some desired (by the analyst) optimum.
The former is a positive model (what is). The latter is a normative model (what could be). The latter is often paraded as the former (even in most textbooks) but they are different models.
robc
Sep 27 2022 at 10:48am
One thing I remember about the bee issue:
In different places it works differently. Some places the guys with the trees pay the guys with the bees to set up. In other places (or times?), the guys with the bees play the guys with the trees to be allowed to set up.
Does anyone think a central decision maker could get that right?
nobody.really
Sep 29 2022 at 1:17pm
1: Once again I reflect on different flavors of libertarianism.
On one extreme are the libertines: I get do to whatever I want, and I don’t want some authority telling me otherwise. This view lacks any sense of social cohesion; it’s very “live and let live (and let die).” On the other extreme are fundamentalists: I adhere to (socially- or self-imposed) rigid rules, and I don’t want government imposing additional or conflicting rules. This view is steeped in social cohesion; adherents expect others to conform to their world-view, and seek retribution against those who don’t. Conclusions about one flavor of libertarianism rarely justify conclusions about libertarianism in general.
This thread cites an example of orchard-owners who have (allegedly) developed a modicum of social cohesion whereby they can collectively use informal mechanisms to punish fellow orchard-owners. They can use this power to punish orchard-owners who fail to cooperate in sharing pollination costs. And maybe this produces efficient results.
I suspect the libertine flavor of libertarian would be aghast: Could these orchard-owners likewise use this power to punish orchard-owners who fail to maintain their lawns up to community standards? Who fail to join the local church? Who fail to support a cartel pricing scheme? Or who fail to have white skin? Once you surrender the power to impose sanctions to the mob, what limits should we expect? And why would we expect any relationship between the exercise of this power and anything resembling market efficiency?
Yes, centrally-imposed rules have their shortcomings. But there’s a long road between that insight and the conclusion that locally-imposed rules are better. That was the lesson of the Civil Rights Movement.
2: That said, I want to learn more about “emergent” remedies for market failures –but my dog won’t let me sit still long enough to read about them. However, my dog doesn’t know (or, more likely, doesn’t care) when I’m walking her while listening to a talking book. Thus I listened to The Righteous Mind to hear an argument that religion, contrary to the arguments of the New Atheists, is adaptive in part because it helps provide the kinds of social cohesion necessary to manage externalities. Can anyone suggest other audiobooks on the topic?
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