Vlad Tarko

The Future of the Commons - Beyond Market Failure and Government Regulation

Traditional economic models of how to manage environmental problems relating to renewable natural resources, such as fisheries, have tended to recommend either government regulation or privatisation and the explicit definition of property rights.These traditional models ignore the practical reality of natural resource management. Many communities are able to spontaneously develop their own approaches to managing such common-pool resources. In the words of Mark Pennington: ‘[Professor Ostrom’s] book Governing the Commons is a superb testament to the understanding that can be gained when economists observe in close-up detail how people craft arrangements to solve problems in ways often beyond the imagination of textbook theorists.’In particular, communities are often able to find stable and effective ways to define the boundaries of a common-pool resource, define the rules for its use and effectively enforce those rules.The effective management of a natural resource often requires ‘polycentric’ systems of governance where various entities have some role in the process. Government may play a role in some circumstances, perhaps by providing information to resource users or by assisting enforcement processes through court systems.Elinor Ostrom’s work in this field, for which she won the Nobel Prize in economics in 2009, was grounded in the detailed empirical study of how communities managed common-pool resources in practice.It is essential that we avoid the ‘panacea problem.’ There is no correct way to manage common-pool resources that will always be effective. Different ways of managing resources will be appropriate in different contexts – for example within different cultures or where there are different physical characteristics of a natural resource.Nevertheless, there are principles that we can draw from the detailed study of the salient features of different cases to help us understand how different common-pool resources might be best managed; which rules systems and systems of organisation have the best chance of success or failure; and so on.Elinor Ostrom’s approach has been praised by the left, who often see it as being opposed to free-market privatisation initiatives. In fact, her approach sits firmly within the classical liberal tradition of political economy. She observes communities freely choosing their own mechanisms to manage natural resource problems without government coercion or planning.In developing a viable approach to the management of the commons, it is important, among other things, that a resource can be clearly defined and that the rules governing the use of the resource are adapted to local conditions. This suggests that rules imposed from outside, such as by government agencies, are unlikely to be successful.There are important areas of natural resource management where Elinor Ostrom’s ideas should be adopted to avoid environmental catastrophe. Perhaps the most obvious example relevant to the UK is in European Union fisheries policy. Here, there is one centralised model for the management of the resource that is applied right across the European Union, ignoring all the evidence about the failure of that approach.

Contemporary Work in Austrian Economics

This article provides a brief survey of contemporary developments in the Austrian school of economics, signalling that: (i) the amount of Austrian research and the number of Austrian researchers is growing exponentially; (ii) good Austrian economists are not being marginalised by the economics profession; and (iii) there have been significant advances in our understanding of economics made recently. Scholars can embrace the second revival of Austrian economics and look confidently at the increasing academic credibility of the school.

Polycentric Banking and Macroeconomic Stability

We contribute to the post-crisis literature on macroeconomic stability by arguing that polycentric banking systems can better achieve stability than monocentric systems. Building on the theories of E. Ostrom, we engage the literature on free banking systems to show that these systems met the requirements of polycentric governance systems, and that the unintentional result of the underlying governance institutions was macroeconomic stability. In contrast, modern central banking, because it is monocentric, lacks important features conducive to generating macroeconomic stability. We conclude by discussing various legal barriers that stand in the way of a transition from monetary monocentrism towards monetary polycentrism.

Why Hayek Matters: The Epistemic Dimension of Comparative Institutional Analysis

Abstract Hayek’s “Use of knowledge in society” is often misunderstood. Hayek’s point is not just that prices aggregate dispersed knowledge, but also that the knowledge embedded in prices would not exist absent the market process. Later, in The Constitution of Liberty, he argues that this same idea can also be applied to the study of political and collective choice phenomena. Democracy is not just about aggregating preferences. Absent the democratic process, the knowledge necessary to solve collective problems is not generated. We compare this perspective on democracy to Bryan Caplan’s and Helen Landemore’s theories, and we argue that Hayek’s account focused on “opinion falsification” is richer. Unlike Caplan or Landemore, who adopt a static perspective, Hayek is more interested in the long-term tendencies and feed-back mechanisms. For example, why do Western democracies seem to have gradually moved away from the most deleterious types of economic policies (such as price controls)? Hayek’s conjecture is that the democratic process itself is responsible for this. We connect Hayek’s conjecture about democracy to the broader argument made by Vincent Ostrom, who has claimed that public choice should study not just incentive structures, but also collective learning processes. We believe that this line of research, that is, comparative institutional analysis based on the collective learning capacities embedded in alternative institutional arrangements, merits a lot more attention than it has received so far. The question “Which collective choice arrangements have the best epistemic properties?” is one of the most important neglected questions in political economy.

Why No Chinese Miracle in Africa? Special Economic Zones and Liberalization Avalanches

Special economic zones (SEZs) have been touted as “tools for development”, and yet their results have often been disappointing. We explain how SEZs can be used to reform a country from a system dominated by rent-seeking to a liberalized economy, where officials derive their revenues from taxation rather than rent-seeking. We provide a model of elite dynamics to explain the conditions under which governments can create SEZs that promote country-wide development. Our model predicts that SEZs may only lead to country-wide development in fiscally decentralized countries with heterogeneous elites. SEZs allow areas of a country to liberalize further than the standard theory of federalism suggests. An elite minority in favor of liberalization can therefore introduce SEZs that have external liberalizing effects on other regions in the country. This in turn incentivizes more elite members to promote liberalization. Comparing the SEZ programs in China and Ghana illustrate how seemingly similar SEZ programs can have very different results.

Challenges to technological and economic foresight in the information society

What happens to our foresight prowess when foundational social changes take place? The paper outlines some basic parameters of the new realities brought about by the information society. Thinking of social forecasting as entailing a combination of economic method with technological foresight, one is able to articulate a more nuanced approach and go beyond the cliches of the day. The paper explores a series of challenges to the practice of technological and economic foresight arguing that, in conjunction, these challenges invite a significant change of attitude in how we approach the practice of social prediction.