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The economic INSTITUTIONS AND THE

Blackwell Publishing Ltd

analysis of ENVIRONMENT
institutions Elinor Ostrom

Scholars have tended to recommend ‘optimal’ solutions for coping with open-access
problems related to common-pool resources such as fisheries, forests and water
systems. Examples exist of both successful and unsuccessful efforts to rely on private
property, government property and community property. After briefly reviewing how
the often-recommended solutions have worked in the field, I suggest that institutional
theorists move from touting simple, optimal solutions to analysing adaptive,
multi-level governance as related to complex, evolving resource systems.

Introduction involved and their actions over time. In light

of the rules, and shared norms when relevant,
The first thing that an institutional theorist individuals adopt strategies leading to
wants to do when given an assignment to consequences for themselves and for others
write a chapter on ‘Institutions and the (Crawford and Ostrom, 1995). As individuals
Environment’ is to clarify how these concepts learn more about the outcome of their own
will be defined. In everyday parlance, the and others’ actions within a particular
terms ‘institutions’ and ‘environment’ are used situation, they may change norms and
casually and refer to many things. Sometimes strategies leading to better or worse outcomes
people refer to a local prison as an institution, for themselves and the relevant environment.
or to a broad practice within a society, such Many environmental goods are common-
as ‘the institution of marriage’. The pool resources, which will be the focus for
‘environment’ can be used to refer to the this article. Common-pool resources include
immediate area surrounding a particular resources that are sufficiently large that
setting or to the global atmosphere. excluding potential beneficiaries from using
Fortunately, over time, ever clearer and more them for consumptive or non-consumptive
useful definitions for institutions, for the purposes is non-trivial. Each individual
diverse forms of ‘the environment’, and as well consumptive use (for example, harvesting a
as for the linked levels of interaction, are being truckload of forest products or withdrawing
developed and used by researchers – water from an irrigation system) reduces the
particularly those interested in how resource units that are available to others
institutions enhance or adversely affect (Ostrom and Ostrom, 1977; Ostrom et al.,
multiple objects and processes related to 1994). Without effective institutions to limit
ecological systems (see Aoki, 2001; North, who can use diverse harvesting practices,
2005; Ostrom et al., 2007). highly valued, common-pool resources are
In this chapter, the term institutions refers overharvested and destroyed (FAO, 2005;
to the rules that humans use when interacting Mullon et al., 2005; Myers and Worm, 2003).
within a wide variety of repetitive and
structured situations at multiple levels of
Modelling the open-access
analysis (North, 2005; Ostrom, 2005).
problem
Individuals who regularly interact use rules
(or the absence of rules) designated by Developing formal models has been an
government authorities as relevant for important tool for institutional theorists for
situations of a particular type. They may also analysing why common-pool resources are
develop and enforce their own rules. overharvested and what might be done to
Individuals interacting within a particular avert their destruction. One of the earliest,
rule-structured situation linked to a specific most powerful and long-lasting models of a
environment may also adopt norms regarding common-pool resource is the static model of a
their behaviour given the others who are fishery published by Scott Gordon in 1954. In

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the lab. Designing institutions so that harvesters are motivated

to harvest at a sustainable level is the problem that needs to be
addressed with knowledge about particular resources rather
than just accepting the ‘stick figure’ as representing all one
needs to know about open access resources. Unfortunately, too
many reforms are presented as not much more than ‘stick
figures’, and scholars, policy-makers and communities have
had to learn the hard way about finding rules that match the
complex ecologies that are involved in diverse common-pool
resources.

Figure 1: The Gordon model of fishery bioeconomics

Recommending optimal institutions
Source: Clark (2006, p. 11). The widespread acceptance of the Gordon model has led policy
analysts to recommend three idealised institutions to induce
individual users to engage in sustainable harvesting practices.
Some of the rules recommended as ‘optimal’ are private
an open-access fishery, Gordon (and many other scholars who property (Demsetz, 1967; Raymond, 2003), government
have drawn extensively on his work) posited that each fisher ownership (Lovejoy, 2006; Terborgh, 1999, 2000), or
would invest effort in harvesting until they reached a bionomic community control (Vermillion and Sagardoy, 1999). Multiple
equilibrium, EOA, where total revenue equals total cost. The examples exist where moving to government ownership,
bionomic equilibrium (EOA in Figure 1) generates a high level private property or community control of a common-pool
of rent dissipation. If fishers were to fish at a maximum resource has worked to help users achieve more efficient short-
sustainable yield EMSY, substantial economic gains would be term results and potentially to sustain the resource over the
achieved. The problem is that each fisher still makes money at long term. The particular arrangements that have proven to
EMSY and other fishers would want to enter the fishery. As long be effective, however, differ radically from one another and
as the fishery is open to any fisher who wants to earn money, from the simple policy recommendations made by scholars
the bionomic equilibrium will persist rather than the recommending ‘optimal’ solutions (Rose, 2002; Tietenberg,
maximum sustainable yield. 2002).
This static model has repeatedly been used to show why
common-pool resources that generate highly valued resource
units will be overharvested when no effective rules limit entry Private property and common-pool resources
or withdrawals. The power of the Gordon model comes from In southern California after World War II, for example,
the clarity of its representation of why unregulated common- groundwater producers used the California courts as an arena
pool resources are overharvested. On the other hand, its in which to determine who had rights to pump how much
simplicity is also a weakness when used for designing new water per year. The courts also established a ‘watermaster’
institutions to overcome economic incentives to overharvest. to determine the factual information initially needed to
As Colin Clark (2006, p. 15) reflects, the static, ‘stick-figure’ determine rights and then to monitor the adherence of water
model is too simplistic for analysts to apply it as if it adequately producers to the agreements (Blomquist, 1992). In the
described all common-pool resources. The presumption of groundwater basins that were adjudicated and rights allocated,
many analysts has been that all one has to do is to impose rules markets for water rights emerged rapidly. Furthermore, water
so that harvesters face different incentives and withdraw at a rights tended to be sold or leased by those who had lower
maximum sustained yield. marginal productivity to those with higher marginal
The Gordon model has been used as the underlying productivity – such as water companies who needed rights to
theoretical model for the design of a series of laboratory pump water to meet peak demands – and by rights holders
experiments on behaviour related to common-pool resources. who were exiting the resource (either by moving away, ceasing
The predictions of the Gordon model regarding overharvesting or changing their business) to users who wished to expand
are supported when subjects make anonymous decisions and their access to local water sources.
cannot communicate with one another (Ostrom et al., 1994). After half a decade, times have changed in regard to the
Given an opportunity to use ‘cheap talk’ where promises to one population of the region, local water sources and water
another are not externally enforced, subjects adopt norms and availability in several linked aqueducts. The continuing
strategies that enable them to achieve higher returns (Ostrom jurisdiction of the California court system has enabled water
and Walker, 1991). Further, when given an option to covenant producers to adjust the rules they had earlier negotiated to
with one another regarding whether to create their own cope with disturbance and changing conditions (Blomquist
sanctioning system to be used against non-cooperators, and Ostrom, 2008; Steed and Blomquist, 2006). In some years,
subjects who develop their own sanctioning system producers were authorised to take more than their assigned
approached the achievement of optimal outcomes (Ostrom rights so long as they then curtailed their water production at a
et al., 1992). later time (similar to receiving a monetary loan from the bank
The predictions of overharvesting from an open access that has to be paid back). And, in some cases, producers were
common-pool resource are thus supported in the field and in authorised to take less than their assigned shares and ‘bank’ or

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26 institutions and the environment

store water for future withdrawal. Furthermore, the water and the government immediately began to offer incentives to
producers have experimented with a diversity of other domestic, commercial fishers to encourage them to replace the
institutions, such as the creation of special districts to levy foreign fleets that had been overfishing their waters. In 1986,
a substantial tax on pumped water, to pay for basin New Zealand became one of the first countries to adopt a
replenishment as well as monitoring and reporting on basin market-based fishery regulation when it adopted a quota
conditions. Thus, while privatising rights was a crucial step in management system (QMS) and allocated ITQs to a subset of
reducing continued overharvesting of groundwater in Los domestic fisheries (Annala, 1996). The government also
Angeles, it was only one of a complex series of institutional removed the subsidies it had established just a few years
changes and adaptations over time. earlier.
In relationship to fisheries, individual transferable quota New Zealand authorities had to make still further
(ITQ) systems are frequently recommended as the ‘optimal’ adjustments as they discovered that the biological models
strategy (Raymond, 2003; Scott, 1988). Notable cases exist underlying the initial allocation of permanent allocation of
where establishing an ITQ system has averted a collapse of a fixed quotas needed to be adjusted over time in light of further
fishery, but few of the ‘successes’ were immediate. All took evidence. After considerable renegotiation, commercial fishers
some time adjusting various aspects after a national received a revised ITQ in 1990 based on a proportion of the
government agency first designed an ITQ system. Most of the total catch assigned annually (Yandle and Dewees, 2003).
successes have evolved into more complex systems relying on Commercial fishers also demanded a greater role in
multiple institutional arrangements rather than being simple determining quotas and other fishery policies resulting in the
ITQ systems. Fisheries Amendment Act being passed in 1999, which
The British Columbia trawl fishery for groundfish, for recognised commercial stakeholder organisations (CSOs) as
example, had been heavily utilised since World War II ‘approved service delivery organizations’ that may compete for
(Grafton et al., 2006). Early efforts to control overfishing by contracts to provide scientific research and other fisheries
governmental policies included: restricting the number of services. Furthermore, CSOs are essentially the recognised
fishing vehicles and the equipment that could be used, the voice of the industry for the fishery they represent. In essence,
assignment of total allowable catch (TAC) quotas, and the the original ITQ system evolved into a ‘co-management’ system
assignment of fishing trip quotas. Massive overharvesting led but one in which some major interests – such as customary
to the closing of the fishery in 1995. Within a few years, the Maori interests, recreational fisheries and environmental
fishery was reopened with new regulations including an annual groups – are not recognised (Yandle, 2003). Furthermore,
ITQ system granted by the Federal Minister of Fisheries for Yandle (2007) has identified some of the ‘mismatches’ involved
each species (Clark, 2006, pp. 238–240). Thus, fishers do not in the relationships among the property rights assigned to
‘own’ the quota assigned, but some trading is allowed, and no different groups along both temporal and spatial dimensions
ITQs have been taken away from assigned trawlers. In (Cash et al., 2006). In regard to spatial mismatches, Yandle
addition, all catches are recorded by onboard observers to (2007) identifies overlapping or poorly defined boundaries
avoid earlier problems of underreporting. Clark (2006, p. 239) such as those among:
observed that the ITQ system has led to profound changes:
‘customary Maori fishing, aquaculture, marine reserves, and commercial
‘First, catch data are now reliable, allowing the scientists to perform fishing [that] create political or physical competition for access to
believable TAC estimates. [This is the result of the observer programme, marine resources, as well as frustration within the commercial fishing
not of the ITQ system itself, although the latter no doubt implies a community, which perceives that its broad, but not exclusive, spatial
degree of acceptance and support of the observer programme.] rights are eaten away by the smaller but more exclusively defined spatial
‘Second, a decrease in fleet capacity has occurred, as both small rights of interests such as marine reserves, customary Maori fishing,
and large vessels have sold their quotas and withdrawn from the and aquaculture.’
fishery . . .
‘In terms of resource conservation, discards are not only accurately The multiple problems of reconciling diverse interests with
quantified, but have also been significantly reduced because of the multiple types of property rights in a spatial domain have led
ITQ-generated economic incentives against catching unwanted to rapid legislative changes that tend to make the overall
species.’ system more fragile (Yandle, 2008).
One of the most famous (or infamous, depending on the
Thus, the ITQ system has had a positive impact on the fishery, view of the reader) ITQ systems was gradually introduced in
but an effective monitoring system was also an essential aspect Iceland after multiple crises in Icelandic fishery stocks
of the success. The importance of realistic provisions for (Arnason, 1993). After experimenting with diverse TAC
monitoring the conformance of resource users to a property systems and considerable controversy, a uniform ITQ system
rights allocation is rarely mentioned when scholars was adopted in 1990 for all relevant fisheries (Eggertsson,
recommend ITQ systems. 2005). Similar to the evolved New Zealand ITQ system, quotas
While smaller-scale inshore fishing had long existed in New are not to fixed quantities but rather to a ‘share’ of the annual
Zealand’s inshore waters (Johnson and Haworth, 2004), large- authorised catch level set by the Icelandic government based
scale, deepwater, commercial fisheries developed later in New on the recommendation of fishery experts. The Iceland ITQ
Zealand than in British Columbia due to heavy fishing by system appears to have averted the collapse of many valuable
foreign fleets in waters surrounding New Zealand. New species for the Iceland fishery. It has been less successful in
Zealand declared its 200-mile Exclusive Economic Zone in 1983 restoring the Icelandic cod stocks, which have suffered

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dramatic losses throughout the North Atlantic region same country have found that some are well protected and
(Finlayson and McCay, 1998). others not. Ostrom and Nagendra (2006) provide strong
In his analysis of the long and conflict-ridden road to the evidence that the Mahananda Wildlife Sanctuary in West
Icelandic ITQ system, Eggertsson (2004) reflects that Bengal, India, has successfully prevented deforestation, but this
introducing major institutional changes is a ‘subtle art’ rather success involves high administrative costs and considerable
than a simple use of a ‘one-size-fits-all’ formula. Eggertsson conflict with the local population. On the other hand, the
criticises the work of fellow economists who have created a Tadoba Andhari Tiger Reserve in Maharashtra, with only a
sense of ‘false optimism’ about how to manage complex modest budget, is not able to control entry into the forest and
fisheries. Simply designing a system in a top-down fashion and the loss of forested land is substantial. Forests within Tikal
imposing it on the harvesters does not turn out to be as National Park in the Mayan Biosphere Reserve in Guatemala –
successful or adaptive as working with the users of a common- well-financed through fees collected from tourists – are in
pool resource over time to develop a system that is well excellent condition (Dietz et al., 2006). At the same time,
matched to the ecological system as well as to the practices, nearby national parks – Laguna del Tigre National Park and
norms and long-term economic welfare of the participants. the Sierra del Lacondon National Park – even though they are
the same ecological zone and under the same institutional
structure, are ravaged by illegal harvesting.
Government property and common-pool resources
For some scholars, public ownership of land is the only way to
Community property and common-pool resources
achieve sustained conservation over time (Lovejoy, 2006;
Terborgh, 1999). This has led to proposals for creating a system While some scholars have been overly enthusiastic about the
of government-protected areas across the world (Ghimire and performance of diverse kinds of community ownership or
Pimbert, 1997). Currently, more than 100,000 protected areas involvement as a solution to overharvesting of common-pool
already exist and include approximately 10% of the forested resources (Western and Wright, 1994), strong involvement of a
areas in the world (Barber et al., 2004). While considerable community is no more a panacea than private or governmental
enthusiasm exists for creating protected areas, their ownership (Campbell et al., 2001; Meinzen-Dick, 2007;
performance has varied substantially. Nagendra, 2007). Empirical studies of common-pool resources
Some positive evaluations of the effectiveness of protected under community control have shown that benefits are
areas rely on qualitative ratings by government officials and sometimes distributed in an unequal fashion among
park managers at multiple sites rather than independent community members (Oyono et al., 2005; Platteau, 2004)
studies (Bruner et al., 2001; Ervin, 2003). While it is important leading in some cases to the exclusion of the poorest members
to learn what officials think about their progress, full reliance of a community (Malla, 2000).
on self-assessments may introduce serious biases in the Little evidence exists that simply turning common-pool
analysis (Hockings, 2003; Nepstad et al., 2006). A study of resources over to local users will avoid overharvesting. Some
forest conditions evaluated by an independent forester or communities manage their fisheries or forests better than
ecologist for 76 government-owned protected parks as others (Acheson, 2003; Andersson, 2004; Gibson et al., 2000).
contrasted to 87 forests owned under a diversity of While strong evidence exists that local communities are
arrangements (private, community, government) did not find capable of creating robust local institutions for governing local
any statistical difference in the forest conditions between resources sustainably (Bray and Klepeis, 2005; NRC, 2002;
protected areas and all others (Hayes, 2006; see also Gibson Ostrom, 1990, 2005), some analysts have gone overboard and
et al., 2005). proposed community-based conservation as another cure-all
A large study conducted by the World Wildlife Fund (Berkes, 2007). This has led some donor-funded efforts to turn
(WWF) included over 200 protected areas in 27 countries. The control over to local residents with a simple blueprint
WWF found that many protected areas lacked key financial approach (Pritchett and Woolcock, 2004), leading to little
and human resources, a sound legal basis, and did not have community involvement and enabling local ‘elite capture’ of
effective control over their boundaries (WWF, 2004). Owing to benefits. Moreover, total ‘turnover’ ignores the necessity of
these conditions, extensive conflicts among park residents, managing common-pool resources at multiple levels, with
park personnel and with local communities that surround vertical and horizontal interplay among institutions.
many protected areas are frequently reported as well as illegal Community management in a variety of forms – direct
harvesting (Wells and Brandon, 1992). Nepstad et al. (2006) ownership, government concessions, or other long-term co-
broadened the debate by examining several different tenure management arrangements – has the capacity to be as effective
arrangements within protected areas including extractive or, under certain conditions, more effective than government
reserves, indigenous territories and national forests in Brazil. ownership (Bray et al., 2005). The debate over the effectiveness
Under conditions of intense colonisation pressures, they found of diverse institutions needs to be extended to a larger
that strictly protected areas are more vulnerable to landscape of tenure regimes than just community ownership.
deforestation and fire than indigenous reserves. These and Various forms of co-management do assign substantial
other studies indicate the need to shift away from the management responsibilities and access to resources in and
presumption that creating government-owned parks and around a resource, and a wide variety of community
reserves is the only way to protect forests and biodiversity. management types, from full ownership to community-rights
Carefully controlled analyses over time of remotely sensed concessions on public lands to private management, can be
images of deforestation levels in national parks located in the effective if they are well tailored to the particular attributes of a

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28 institutions and the environment

resource and the larger and smaller resources to which it is • ‘Personal Characteristic Rules’ that require ascribed or
linked. Simple solutions do not exist for managing complex acquired personal attributes (e.g. age, gender, education,
ecologies (Campbell et al., 2006; McPeak et al., 2006). skill test, etc.).
• ‘Relationship to a Resource Rules’ that specify conditions
of use depending on the relationship of a user with the
From optimal solutions to adaptive
resources (e.g. length and continuity of use, ownership of
multi-level governance
land or other asset, acquisition of licence, etc.).
A key finding from decades of in-depth studies of institutions
and the environment is that the same rules that work well in We have found empirical examples of four types of Residency
one setting are part of failed systems elsewhere! There are no or Membership Rules, nine types of Personal Characteristic
‘optimal’ rules that can be applied to all fisheries, all forests, or Rules, and 13 Relationship to a Resource Rules. Some specific
all water systems (Grafton, 2000; Ostrom, 2007). We simply boundary rules specify more than one category (e.g. a user
must stop relying on stick-figure models alone and proposing must be over 21, have taken a skill test, and use a specific type
‘one-size-fits-all’ solutions, given that these solutions have of technology to be an authorised user of a particular resource)
themselves generated tragedies when widely applied rather (see Ostrom, 2005, Ch. 8).
than solved them. It is important to note that repeated studies have not yet
Instead of presenting stick-figure models of resource found specific rules that have a statistically positive relationship
systems, institutional theorists need to recognise what to performance in a large number of common-pool resources
ecologists recognised long ago: the complexity of what we (Dietz et al., 2006; Gibson et al., 2000; NRC, 2002). On the
study and the necessity of recognising the non-linear, self- other hand, the absence of any boundary rule or any
organising and dynamic aspects as well as the multiple monitoring effort to ensure that a well-defined set of
objectives and the spatial and temporal scales involved. As the authorised users are following the rules related to timing,
distinguished ecologist Simon Levin (1999, p. 2) has technology and quantity of harvesting is consistently
summarised: associated with poor performance (Ostrom and Nagendra,
2006; Ostrom et al., 1994).
‘That is, ecosystems are complex, adaptive systems and hence, are After reading and coding hundreds of cases that described
characterized by historical dependency, complex dynamics, and multiple both successful and unsuccessful private, government and
basins of attraction. The management of such systems presents community property arrangements, without finding a clear set
fundamental challenges, made especially difficult by the fact that the of specific rules associated with long-term sustainability, I
putative controllers (humans) are essential parts of the system and, derived a set of design principles to characterise those cases of
hence, essential parts of the problem . . . local, common-pool resources that had survived long periods
‘There are a number of lessons that emerge from this study and guide of time (Ostrom, 1990). The predictive power of these design
it. Most important is the importance of experimentation, learning and principles in helping to distinguish successful from
adaptation.’ unsuccessful cases has now been supported by multiple studies
(Dayton-Johnson, 2000; Marshall, 2005; Sarker and Itoh,
Institutional economists need to recognise that deriving a 2001; Trawick, 2001; Weinstein, 2000).
simple, beautiful mathematical model is not the only goal of To apply what we have learned to policy, we can translate
our analysis. Adopting more complex approaches – including the design principles into a set of questions that those involved
flow charts, simulations, dynamic systems analysis and the in designing and adapting institutional arrangements for a
specification of multiple factors – is not a sign of failure when particular resource system would need to address. Basically,
the systems being analysed are fundamentally complex and any institutional arrangement for regulating a common-pool
multi-level (Wilson, 2006; Wilson et al., 2007). Models are resource to achieve multiple objectives needs to help harvesters
powerful tools and we need to develop them so that they can be and officials address the following questions in a way that is
used to capture more complex phenomena (Costanza et al., understood by those involved and considered legitimate given
2001). We cause harm, however, by recommending one-size- the characteristics of the resource, the community involved and
fits-all institutional prescriptions based on overly simplified the larger economic and political domains:
models of resources to solve problems of overharvesting.
• Who is allowed to harvest which kinds of resource units?
• What will be the timing, quantity, location and technology
Thinking about policy recommendations
used for harvesting?
In earlier efforts to analyse which rules worked best related to • Who is obligated to contribute resources to maintain the
fisheries, irrigation systems and forests, we found a simply resource system itself ?
gigantic number of individual rules that were used in the field • How are harvesting and maintenance activities to be
(Ostrom, 2005; Schlager, 1994; Tang, 1994). Focusing on monitored and enforced?
boundary rules that define who can gain access to enter • How are conflicts over harvesting and maintenance to be
and harvest from a resource, we have identified three broad resolved?
classes: • How will cross-scale linkages be dealt with on a regular
basis?
• ‘Residency or Membership Rules’ that specify residency or • How will risks of the unknown be taken into
membership requirements. consideration?

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• How will the rules affecting the above be changed over will ‘hit’ them over time (Anderies et al., 2007; Janssen et al.,
time with changes in the performance of the resource 2007).
system, the strategies of participants and external
opportunities and constraints?
Acknowledgements
Instead of presuming that one can design an optimal system in Support for the research on which this paper is based has been
advance and then make it work, we must think about ways to provided by the National Science Foundation and the
analyse the structure of common-pool resources, how these MacArthur Foundation. The author appreciates the valuable
change over time, and adopt a multi-level, experimental comments received from Bill Blomquist, Colin Clark and
approach rather than a top-down approach to the design of Tracy Yandle.
effective institutions.
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© 2008 The Author. Journal compilation © Institute of Economic Affairs 2008. Published by Blackwell Publishing, Oxford