Political Entrepreneurs

The Economic Engine of Political Change

Buchanan and Yoon on Commons and Anticommons

February 1st, 2013 by Wayne Leighton

In “Symmetric Tragedies: Commons and Anticommons,” James Buchanan and Yong Yoon discuss two ways that poorly defined property rights can cause inefficient resource use. The familiar tragedy of the commons can occur when rights to use a valuable resource are overassigned, which creates the incentives for overuse.

For example, in this TED Talk (specifically minutes 0:00-3:30) Rob Harmon explains why rivers and streams throughout the country turn into dry creek beds every summer. Because water rights have historically evolved into a first-come, first-served system, there is no incentive for rights holders not to draw out their full quota. As Harmon puts it, “if you don’t use your water rights, you might lose your water rights.”

The less-familiar tragedy of the anticommons can occur when rights to exclude others from using a resource become overassigned, which creates the incentives for too little use. The concept is first articulated in Michael Heller’s 1998 Harvard Law Review article, in which he observes that an anticommons can result when rights to use a resource are poorly structured. The problem extends beyond a simple need to define rights clearly. In fact, Heller argues that an anticommons problem may result even if rights are reasonably well-defined and protected, if the bundle of rights that represents full ownership is spread broadly over too many rights-holders. Heller examined post-Soviet Russia and found that Moscow stores often went unused while street vendors operated a brisk business directly in front of these empty buildings. The problem was too many parties with the right to determine whether a particular storefront would be rented, and under what terms.

Buchanan and Yoon extend Heller’s concept into a simple yet profound point: commons and anticommons problems are two sides of the same coin. This point might be obvious, especially in light of how the above examples are framed.

But reading carefully, we can see that the solutions to commons and anticommons problems are also flip sides of a coin. For example, in the second footnote, Buchanan and Yoon cite Elinor Ostrom’s Governing the Commons, which shows how people interacting with each other locally, in repeated play, often evolve rights to access and exclusion that give people incentives to use, but not overuse, common pool resources such as pasture lands, inland fisheries, underground aquifers, and more.

Can similar arrangements evolve to avoid underuse in cases of anticommons? Buchanan and Yoon turn a figurative eye to Harmon’s rivers and streams. In particular, they worry about environmental conservation laws that add layers of authority, each with the right to exclude a development project:

While these authorities have, without question, prevented some value-reducing development, they have also prevented value-enhancing development. Economists as well as environmentalists have perhaps concentrated too much attention on the commons side of the ledger to the relative neglect of the anticommons side.

As always, when thinking about economic efficiency, the trick is to balance costs with benefits. And this brings us back to Buchanan’s deepest contribution, which is to think of human interaction not as a set of resource allocation problems but instead as a network of exchange processes. Chapter 4 of Madmen is centered on this theme, and so is Ed’s recent post on Buchanan’s approach to social science. The relevant question here is: How might people who interact with each other in repeated play establish rules that avoid both the inefficient overuse and  underuse of valuable resources? Á la Ostrom, we often see that emergent social norms provide the answer.

On this blog, and in our ongoing work, Ed and I always view political entrepreneurship as introducing new ideas to change existing rules of the game [e.g., here, here, and here]. It is important to remember that this includes the emergence of informal rules, not just the reform of formal legal or political rules. If we want to understand how commons and anticommons problems can be avoided, we should recognize that bottom-up, emergent processes matter. And we should take our cues from the intellectual giants — like Lin Ostrom and Jim Buchanan — who have shed valuable light on these paths of understanding.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.189, ch.7)

The most successful entrepreneurs know what they do well, they know the market and the opportunities within it, and they choose those activities that create the most value. This is true in economic as well as political markets.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.178, ch.7)

[W]hen the right elements come together at the right time and place and overwhelm the status quo, it is because special people make it happen. We call them political entrepreneurs.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.176. ch.7)

While we started this book with Danny Biasone saving basketball, we end it with Norman Borlaug saving a billion lives. These stories are not that different. Both faced vested interests, which were reinforced by popular beliefs that things should be a certain way—that is, until a better idea came along.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.174, ch.6)

Because there was a general belief that homeownership was a good thing, politicians found the public with open arms.... Everybody was winning—except Alfred Marshall, whose supply and demand curves were difficult to see through the haze of excitement at the time, and except Friedrich Hayek, whose competition as a discovery procedure was befuddled... In short, once politicians started getting credit for homeownership rates, the housing market was doomed.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.166, ch.6)

Everyone responded rationally to the incentives before them. In short, the rules that guided homeownership changed over time, which in turn changed the incentives of these actors. And bad things happened.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.153, ch.6)

They understood the economics. The ideas had already won in ... the regulatory agency itself. All that remained to be overcome were some vested interests and a handful of madmen in authority.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.146, ch.6)

If the idea for auctions of spectrum use rights had been part of the public debate since at least 1959, why didn’t the relevant institutions change sooner? What interests stood in the way?

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.121, ch.5)

When an academic scribbler comes up with a new idea, it has to resonate well with widely shared beliefs, which in turn must overcome the vested interests at the table. Many forces come together to explain political change, even though it may seem like coincidence of time and place.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.120, ch.5)

It’s the rules of the political game that deserve our focus, not politicians’ personalities or party affiliations.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.119, ch.5)

In short, ideas are a type of higher-order capital in society. Like a society that is poor in capital and therefore produces little consumer value, a society that is poor in ideas and institutions will have bad incentives and therefore few of the desirable outcomes that people want.

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