Design Principles of Robust Property Rights Institutions

Elinor Ostrom, one of the pioneers in developing the theory of property rights, challenged the then-conventional wisdom that common-pool resources will be overharvested if clearly delineated private property rights or state interventions do not exist. In her research Ostrom (1990) found that parties jointly using a common-pool resource often create workable formal and informal rules for resource allocation. A governance structure that is based on private property rights enforced by external authorities is not always necessary or optimal. Users are often capable of nurturing trust and reciprocity to solve their collective action problems.

How do involved parties design and implement robust self-organizing common-property institutions? In her 1990 study Ostrom proposed eight design principles, an overview of these principles is included. In this paper, she examines the validity of the principles by reviewing their application to 33 empirical cases published in research papers written by other scholars. Three-quarters of these cases show strong or moderate support for the usefulness of Ostrom’s design principles. Scholars who reviewed the applications of the design principles suggest more precise specifications for some principles. Some argue that the principle of delineating boundaries for commons should be divided into two parts, one for defining the boundaries of the resource, and the other for stipulating who should be included as authorized users. Also, the principle of balancing rights and responsibilities of appropriating a common-pool resource should be separated into three types: (1) harmony with the local ecology; (2) congruence with the local culture; and (3) equitable distribution of rewards to participants according to their contributions. Ostrom also translates all eight design principles into questions to assist in the diagnosis of institutional deficiencies. This approach, she argues, would enhance their application.

Ostrom’s research highlights the importance of high transaction costs of defining resource boundaries and determining who is authorized to use the resource. Determining the size of future expenditures for sustaining the resource and assigning them to users in proportion to the benefits received is also costly. Minimizing these costs requires a set of carefully crafted institutions, including (1) a participatory decision-making process; (2) an effective monitoring system that provides inspectors with proper incentives; (3) gradual and adjustable sanctions according to the seriousness and circumstances of the offenses; (4) low-cost conflict resolution mechanisms at both regional and local levels; (5) recognition of the importance of self-governance by users and outsiders; and (6) a multiple-layer, polycentric governance structure to connect smaller subgroups nested in a larger commons. Ostrom’s approach illustrates that the establishment and modification of property rights systems necessitate heavy and prudent long-term investment in institutional building.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2008 and is Chapter 2 of the book Property Rights and Land Policies.