Optimality, Sub-optimality, Nirvana, and Transaction Costs Foraging on the Commons

Abstract

Published as Feeny, David, "Sub-Optimality and Transaction Costs on the Commons," in Edna Tusak Loehman and D. Marc Kilgour (eds.), Designing Institutions for Environmental and Resource Management (Cheltenham, Edward Elgar Publishing, Ltd., 1998), 124-141.

"Much of the literature on the management of common-property resources is focused directly or indirectly on enhancing the evidential basis for the formulation of policy. Therefore the assessment of the effects of a variety of factors, including institutional arrangements, on outcomes associated with the exploitation of common-property resources is a common theme.

"But how do we measure outcomes? How do we know how well we are doing? A number of relevant categories of outcome measures have been proposed or used in literature. Prominent among these are measures of economic efficiency, equity, and sustainability (see for instance Berkes, Feeny, McCay, and Acheson 1989; Feeny, Berkes, McCay, and Acheson 1990; Feeny 1992; Norgaard 1992; Oakerson 1992; Ostrom 1992; Ostrom, Gardner, and Walker 1994; Rothenberg). Each of these categories includes a diversity of measures and indicators.

"A large number of challenging issues arise in selecting outcome measures including the choice of viewpoint from which to assess outcomes, time horizon, choice of normative system, measurement properties of the indicators selected (including reliability, reproducibility, validity, and responsiveness), and practical implementability of the indicators. For the most part, I will ignore these difficult issues.

"To simplify the analysis, without implying any lack of legitimacy to alternative viewpoints (or special legitimacy to the viewpoint selected), I am going to assume an anthropocentric viewpoint. An outcome that matters is human welfare. I am assuming that a fundamental objective in managing common-property resources is to enhance the welfare of human beings [[florin]] both current and future generations.

"Again without implying any lack of legitimacy for equity and sustainability as measures of outcome, I will focus my attention on the use of economic efficiency as an indicator of outcome."