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Living within Rules:Why Only Limited Governments Can Be Resilient, and  Only Polycentric Governments Can Be Limited       ...
Basic idea
Overview• What is institutional resilience?• What is institutional complexity?• The nested nature of social order• Institu...
Overview• What is institutional resilience?• What is institutional complexity?• The nested nature of social order• Institu...
Institutional resilience• The ability of a social system (society,  community, organization) to react and  adapt to abrupt...
Resilience from an equilibrium            perspective• Absorption capacity  – The size of the shock with which the system ...
Resilience from a non-equilibrium            perspective• Adaptability  – Change is     • unavoidable     • necessary  – U...
Overview• What is institutional resilience?• What is institutional complexity?• The nested nature of social order• Institu...
Complexity is non-linear• Miller & Page (2007) Complex Adaptive  Systems: An Introduction to  Computational Models of Soci...
What is social complexity• The network that matters is not made of  actual, flesh-and-blood people• What matters: the netw...
The fundamental building block of       institutional reality• Searle’s role assignment formula      x has institutional r...
Rules and norms
Political power
Overview• What is institutional resilience?• What is institutional complexity?• The nested nature of social order• Institu...
Self-similarity
IAD, step 1
IAD, step 2
IAD, step 3
IAD, step 4
Institutional design: Incentive and       knowledge problems• IAD framework is mainly a descriptive  scheme – useful for u...
Overview• What is institutional resilience?• What is institutional complexity?• The nested nature of social order• Institu...
Institutional designKnowledge problem
What drives social complexity up?• Ideally, institutions as devices for preventing  social problems   – “if people can rel...
Trade-off between efficiency and             resilience• Miller & Page (2007):  – “Adaptive systems have to deal with the ...
Why do complex social systems              fail?• Constanza, Low, Ostrom & Wilson (2001)  Institutions, Ecosystems, and Su...
Institutional designIncentive problem
Rules designed to benefit designers•   Rent-seeking•   Regulatory capture•   Credible commitment problem•   Endurance of c...
Overview• What is institutional resilience?• What is institutional complexity?• The nested nature of social order• Institu...
What is polycentricity• Aligica & Tarko (2012)  – a multiplicity of decision centers acting    independently but under the...
Effects of polycentricity: knowledge              problem• Experimentation & imitation  – Trial and error  – Rejection of ...
Effects of polycentricity: Incentive               problem• Subsidiarity:  – all problems must be addressed at the most   ...
Resilience and efficiency• Resilience stems from limiting abuses of  power (i.e. limited government)  – Replacing highly p...
Rational rent-seeking VS free-floating               rationales• Persons with authority can’t really solve the  knowledge ...
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Vlad Tarko - Living within Rules

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Why Only Limited Governments Can Be Resilient, and Only Polycentric Governments Can Be Limited

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Vlad Tarko - Living within Rules

  1. 1. Living within Rules:Why Only Limited Governments Can Be Resilient, and Only Polycentric Governments Can Be Limited Vlad Tarko George Mason University, Economics Department
  2. 2. Basic idea
  3. 3. Overview• What is institutional resilience?• What is institutional complexity?• The nested nature of social order• Institutional design: incentive and knowledge problems• Polycentricity
  4. 4. Overview• What is institutional resilience?• What is institutional complexity?• The nested nature of social order• Institutional design: incentive and knowledge problems• Polycentricity
  5. 5. Institutional resilience• The ability of a social system (society, community, organization) to react and adapt to abrupt challenges (internal or external) and to avoid gradually drifting along destructive slippery slopes.
  6. 6. Resilience from an equilibrium perspective• Absorption capacity – The size of the shock with which the system can cope• Speed of recovery – How fast the system gets back to normal after a shock
  7. 7. Resilience from a non-equilibrium perspective• Adaptability – Change is • unavoidable • necessary – Uncertainty as a resource• Avoiding slippery slopes towards “catastrophic thresholds” – E.g. • Mancur Olson’s Rise and Decline of Nations • Jared Diamond’s Collapse
  8. 8. Overview• What is institutional resilience?• What is institutional complexity?• The nested nature of social order• Institutional design: incentive and knowledge problems• Polycentricity
  9. 9. Complexity is non-linear• Miller & Page (2007) Complex Adaptive Systems: An Introduction to Computational Models of Social Life: – “Complexity arises when the dependencies among the elements become important. In such a system, removing one such element destroys system behavior to an extent that goes well beyond what is embodied by the particular element that is removed.”
  10. 10. What is social complexity• The network that matters is not made of actual, flesh-and-blood people• What matters: the network of institutions• Eliminating individual people rarely matters for the social system as a whole• Missing institutions matter
  11. 11. The fundamental building block of institutional reality• Searle’s role assignment formula x has institutional role R in context C• Institutional role (position, “status function”) = bundle of rights and obligations• How institutional complexity emerges: – x and C can be previously defined roles or functions of previously defined roles
  12. 12. Rules and norms
  13. 13. Political power
  14. 14. Overview• What is institutional resilience?• What is institutional complexity?• The nested nature of social order• Institutional design: incentive and knowledge problems• Polycentricity
  15. 15. Self-similarity
  16. 16. IAD, step 1
  17. 17. IAD, step 2
  18. 18. IAD, step 3
  19. 19. IAD, step 4
  20. 20. Institutional design: Incentive and knowledge problems• IAD framework is mainly a descriptive scheme – useful for understanding how institutional change occurs (Ostorm 2008).• The redesign is done by the participants themselves – who often have vested interests about the outcomes.• The redesign of the institutional factors is not done by – impartial and benevolent agents – omniscient agents
  21. 21. Overview• What is institutional resilience?• What is institutional complexity?• The nested nature of social order• Institutional design: incentive and knowledge problems• Polycentricity
  22. 22. Institutional designKnowledge problem
  23. 23. What drives social complexity up?• Ideally, institutions as devices for preventing social problems – “if people can rely on others to fulfill certain roles, then their expectations are more likely to be coordinated”; “institutions convey knowledge, in the sense that the routine courses of action they embody are efficient adaptations to the environment” (O’Driscoll & Rizz0 1985, The Economics of Time and Ignorance) – “Complex societies are problem-solving organizations, in which more parts, different kinds of parts, more social differentiation, more inequality, and more kinds of centralization and control emerge as circumstances require” (Tainter 1988, The Collapse of Complex Societies)
  24. 24. Trade-off between efficiency and resilience• Miller & Page (2007): – “Adaptive systems have to deal with the tension between the benefits of achieving precise behavior and the cost of increased system fragility”• Optimal systems are less robust, Carlson & Doyle (1999), Highly Optimized Tolerance (HOT): – “Optimizing yield will cause the design to concentrate protective resources where the risk of failures are high, and to allow for the possibility of large rare events elsewhere”
  25. 25. Why do complex social systems fail?• Constanza, Low, Ostrom & Wilson (2001) Institutions, Ecosystems, and Sustainability – Missing or failed institutions – Scale mismatches • Missing Connections • Incorrect Scale of Information• Rational social design is very hard.• Alternative: a social mechanism for growing institutions “organically”, by trial and error.
  26. 26. Institutional designIncentive problem
  27. 27. Rules designed to benefit designers• Rent-seeking• Regulatory capture• Credible commitment problem• Endurance of constitutions – Easier to amend • Lasts longer • Less constraining – Harder to amend • It is replaced entirely –> even less credible
  28. 28. Overview• What is institutional resilience?• What is institutional complexity?• The nested nature of social order• Institutional design: incentive and knowledge problems• Polycentricity
  29. 29. What is polycentricity• Aligica & Tarko (2012) – a multiplicity of decision centers acting independently but under the constraints of – an over-arching set of norms and rules which create the conditions for – an emergent outcome to occur via a bottom- up evolutionary (competitive) process• Ostrom (2005) – The decision centers can be at different scales (e.g. federalism)
  30. 30. Effects of polycentricity: knowledge problem• Experimentation & imitation – Trial and error – Rejection of “one size fits all” and “blueprint thinking” – Cultural evolution of institutions• When failures occur: – Large scale -> reliance on local governance – Small scale -> help from higher level organization
  31. 31. Effects of polycentricity: Incentive problem• Subsidiarity: – all problems must be addressed at the most local level possible – that avoids free-riding problems – Free exit gets cheaper => increased pressure on local authorities => less abuse of arbitrary power• Universal rights recognized and enforced at larger scale: – Prevention of “local tyrannies”
  32. 32. Resilience and efficiency• Resilience stems from limiting abuses of power (i.e. limited government) – Replacing highly personalized institutional roles with general institutional rules – Polycentricity – especially free exit – forces the adoption of rules• Making rules efficient and flexible: – Institutional diversity and competition instead of flexibility by unlimited authority – Polycentricity – experimentation & imitation – facilitates the discovery of good rules and adaptability to new conditions
  33. 33. Rational rent-seeking VS free-floating rationales• Persons with authority can’t really solve the knowledge problem – The world is too complex to be managed rationally – Only hope: relying on “wisdom without reflection” (Burke), “organic institutions” (Menger), “free-floating rationales” (Dennett).• Free-floating rationales serve no one person or group in a predictable fashion => tension with individual and group interests and their desire to design the institutions that best serve them.• The system is resilient only to the extent that free- floating rationales win over special interests’ attempts at rational design.• This happens only in polycentric systems.

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