Economics of Cooperation (Fach) / Introduction (Lektion)

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• Variables influencing emergence of common property institutions (1-8) 1. Clear- Cut boundaries: individuals/households who are appropriating resource units from a CPR must be well defined as must be the boundaries 2. Congruence between appropriation/delivery rules and local conditions: appropriation ruels which are limiting time, location, technique and quantity of resource unit of appropriation, are adjusted to local conditions and delivery rules, with regard to labor input, material inputs, money 3. Arrangements for collective decision making: those persons who are affected by operational rules can participate in decisions which are changing these rules 4. Monitoring and Enforcement: Those who are actively controlling the state of a CPR and the behavior of appropriators, are accountable to the appropriators or are part of the appropriator`s group. 5. Balanced Sanctions: Appropriators who are violating operational rules are punished with credible and stepwise sanctions by other appropriators or their appointed agents, depending on severity and context of violation 6. Conflict resolution mechanisms: appropriators and their appointed agents have easy access to cost-effective arenas of conflict resolution 7. Minimum respect of organizational rights of a user group: the right of appropriators to develop their own institutions is not questioned by any external governmental administration 8. Embedded enterprises: appropriation, delivery, conflict resolution and management activities are organized within enterprises which are themselves embedded in multiple level structures                                      --> multi level, polycentric governance
• Water Reform and User Cooperation in Namibia Past water policy - Rural Water Supply Reform Past water Policy: related to dualistic land ownership and apartheid Commercial (white) farmers: water PR linked to private land ownership Weakening of traditional authorities restricted use rights in communal areas subsidization, "free good" character --> overexploitation of water Rural Water Supply Reform: stronger stakeholder invovlement more decentralized decision making Water Point User Associations joint operation of water installations management regulations cost recovery from users Key role of community driven decision making in water reform Strong social networks show better rule compliance
• Social- Ecological System (SES) - Social, economic, and political settings (S) Economic development Demographic trends Political stability Government resource policies Market incentives Media organization
• Social- Ecological Systems (SES - Resource Systems (RS) Sector (eg water, forests, pasture, fish) Clarity of system boundaries Size of resource system Human-constructed facilities Productivity of system Equilibirum properties Predictability of system dynamics Storage characteristics Location
• Social-Ecological Systems (SES) - Resource Units (RU) Mobility Growth or replacement rate Interaction among RUs Economic value Number of units Distinctive markings Spatial and temporal distribution
• Social- Ecological Systems (SES) - Governance Systems (GS) Government Organisations NGOs Network structure Property-rights systems Operational rules Collective-choice rules Constitutional rules Monitoring and sanctioning processes
• Socio- Ecological Systems (SES) - Users (U) Number of Users Socioeconomic attributes of users history of users Location Leadership(entrepreneurship Norms/social capital Knowledge of SES/mental models Importance of resource Technology used
• Socio-Ecological Systems (SES - Interactions (I) Harvesting levels of diverse users Information sharing among users Deliberation processes Conflicts among users Investment activities Lobbying activities Self-organizing activities Networking activities
• Socio- Ecological Systems (SES) - Outcomes (O) Social performance measures (eg. efficiency, equity, accountability, sustainability) Ecological performance measures (eg. overharvested, resilience, bio-diversity, sustainability) Externalities to other SESs
• Socio- Ecological Systems (SES - Related Ecosystems (ECO) Climate patterns Pollution patterns Flows into and out of focal SES
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• Definition Institution rules of the game in a society humanly devised constraints that shape human interaction they structure incentives in human exchange (political, social, economic) social rules, conventions and other elements of the structural framework of social interaction Institutional change shapes the way societies evolve through time and hence is the key to understanding historical change Regelwerk
• Collective Action An action taken by a group to achieve common interests voluntary or obligatory for specific persons members can act directly on their own or through an organization occurs informally through social networks or even through temporarily coming together for short term purposes a form of cooperation the mere existence of an organization is not sufficient
• Cooperation Voluntarily arrangement in which two or more entities engage in a mutually beneficial exchange instead of competing can happen where resources adequate for both parties exist or are created by their interaction
• Common Pool Resource Issues Resource stock provides a limited flow of extractable resources (fish, forest, fodder) where it is costly to exclude other users No Excludability, but rivalry
• Resource Unit variables and likelihood of users engaging in collective action to self organize Resource Unit mobility Growth of replacement rate Interaction among resource units (water inflow necessar for tree units) Economic value Absolute number of units Spatial and temporal distribution
• Resource System variables Sectors (water, forests, fish) Clarity of system boundaries size of resource system (village pond) Human-constructed facilities (dams, fences) Productivity of the system Equilibirum properties predictability of system dynamics storage charactersitics (risks, shocks) location (accessibility to foreigners)
• Game theoretical foundations: (Non-) cooperative games Game as abstract model of strategic situation players: each decision maker each course of action open to a player is a strategy payoffs: measured as levels of utility obtained by the players Cooperative games: participants can negotiate binding contracts that allow them to plan joint strategies Non-Cooperative games: negotiation and enforcement of binding contract are not possible Dominant strategies: is optimal no matter what an opponent does Equilibirum in dominant strategies: Outcome of a game in which each player is doing the best it can regardless of what its competitors are doing Nash-Equilibrium: Set of strategies or actions in which each player does the best he can given the competitors actions (Prisoner's D.) Repeated games (used in Experimental Economices --> field experiments on trust and cooperation) Tit for Tat strategy: Repeated Game strategy in which a player responds in kind to an opponents previous play, cooperating and retaliating Infinitely repeated games: Expected gains from cooperatoin will outweigh those from undercutting; cooperative behaviorr is then the rational response to a tit for tat strategy Finite numbers of repitions: Because there will definitely be defection in the last round of the game, the only rational outcome is for both players to retaliate from the beginning Strategic move: Action that gives a player an advantage by constraining his behaviour --> Informal institutions, like social capital, can influence the outcome of a game
• Solutions to the Prisoner's Dilemma State regulation control and command approach (state forests, state managed delivery of energy) Problem: Efficiency, control, maintenance, sanctions, corruption, Enforcement problems in DCs, crowding-out effect (undermining local mechanisms by external interventions) Privatisation favored by most orthodox neoclassical economists in the past privatizin and titling  (ejidos in Mexico, Allmendeland in Prussia, Telecommunication) Problem: local social services, interests of the poor, secondary rights, distributive issues Collective Action (with norms) shared interest or a common goal, that a group of people is trying to achieve voluntarily (nature, social issues, culture) stability, power of local elites, modernity or old fashioned, backward looking? Depending on trust and social capital
• Social Capital Market value of a frim typically exceeds by considerable amount vlue of its physical assets and even human capital --> social capital Tacit knowledge: social glue that produces choesion, set of cognitive aptituted and predispositions (opportunity costs) Collection of networks: social groups into which one is socialized Aggregation of reputation and a way to sort out reputations Organizational capital: that managers have developed through their styles of administration, practices, incentives Social capital and social institutions can make up for deficiencies in market economy able to work more efficient (transaction cost theory) Make or buy? What is the efficient boundary of a firm? Rational choice theory: increasing efficiency of organizations by perfecting instruments that match indiviudal effort with individual gain through competitive market mechanisms (redressing the incentives)  
• Experimental Economics: trust, (non-balanced) reciptrocity, heterogeneity It has often been observed that people tend to cooperate more than they should according to standard assumptions of individual rationality This excess cooperation result has been confirmed in experiments even for players who do not know each other and ply only once (communication, endogenous rule enforcement, rule creation further improves cooperation in repeated social dilemmas) External interventions vs. self governance
• Experimental Hypotheses (managen CPR) crowding-out effect for reward and punishment Co-operation increases depending on amount of people that have voted for a certain institution (penality, reward or communication) Regional variations in common-pool-resource game can be explained with trust game and cultural factors

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