Comments on Elinor Ostrom's 'Governing the Commons'

Abstract

"Governing the Commons offers important insights to a variety of issues, in particular to the design of stable and robust institutions, the creation of norms and the process of institutional change. I have nothing to say on these. My comments will focus on a different theme, dear to economists but which the book leaves somewhat implicit, namely the analysis of external effects. External effects (or externalities) can refer to production, to consumption or to both, and can be positive or negative. We say that producer A causes a negative external effect on producer B when an increase in A's production level reduces the amount (or quality) of the output that B can obtain with a given combination of inputs. A negative external effect induces a discrepancy between the private cost of intensifying A's activity (that is, the additional cost to producer A) and the social cost, which includes the additional cost imposed on B. The examples of Common Pool Resources discussed in Governing the Commons are particular instances of negative external effects in production."