Sunday, December 21, 2014

Governance and Economics and Complex Systems

I recently read a paper by Elinor Ostrom, who won the Nobel Prize for Economics in 2009.  Beyond Markets and States: Polycentric Governance of Complex Economic Systems (2010) presents an overview of the study of polycentric governance and the roadmap for future studies that are probably currently underway.  It can be thought of as a very substantive refinement of economics, where the units of study are groups of individuals who seek to manage public goods.  Sometimes they cooperate effectively, to provide services such as access to water to a city, while other times competition can lead to chaos.  Many situations and conditions can lead to more cooperation where the determining factor is whether the situation builds up trust or breaks it down.  I was personally excited that Ostrom referenced Kenneth Arrow as one of the first economists to discuss the importance of trust.

I was very glad to have read this paper.  I really think all economists, especially those who then go into policy-making really should be familiar with the work on polycentric governance.




A similar, perhaps parallel, topic is complexity in interconnected systems.  In an interconnected system, such as the economy, identifying the key decision-makers and their networks can be enlightening.  The rules governing the system may also lead to some decision-makers to have out-sized influence, leading to outcomes that no one necessarily plans out meticulously but are nevertheless inevitable.  I am still not clear on what discipline(s) this work is emerging in, but I'm definitely excited to learn more.




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