Back in the 1980s, I got interested in the work of Lin and Vincent Ostrom as it pertained to the disjoint between how different economic and political systems were supposed to operate (de jure) and how they actually operated (de facto) and the institutions that emerged to govern the actually practices. It was my interest in the Soviet experience that first alerted me to this ... one of my main professors in graduate school was Michael Alexeev, and along with Gregory Grossman and Vladimir Treml, Mike was also involved with research on the Soviet black-market economy. So with his guidance I studied everything I could on that subject, and that led me to thinking about this disjoint between de facto and de jure rules. From that moment, I saw how in the Austrian literature they also
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Back in the 1980s, I got interested in the work of Lin and Vincent Ostrom as it pertained to the disjoint between how different economic and political systems were supposed to operate (de jure) and how they actually operated (de facto) and the institutions that emerged to govern the actually practices. It was my interest in the Soviet experience that first alerted me to this ... one of my main professors in graduate school was Michael Alexeev, and along with Gregory Grossman and Vladimir Treml, Mike was also involved with research on the Soviet black-market economy. So with his guidance I studied everything I could on that subject, and that led me to thinking about this disjoint between de facto and de jure rules. From that moment, I saw how in the Austrian literature they also made this distinction -- from Mises's discussion of money, to Hayek's discussion of law, and Rothbard's discussion of prohibition. Prior to that, I think it is probably accurate to say that I thought there was sound economics and their was public policy, and if public policy matched sound economics then good things would follow, and if public policy was based on bad economics, then bad things happened. So the job was to make sure people understood sound economics.
I still believe that deep in my gut, but I became more fascinated after this realization in understanding economic life and the multiple and varied margins of adjustment and adaptation to circumstances that are made by creative and clever human actors. The work of the Ostroms (both Lin and Vincent) were vital to that quest to provide understanding. At the same time, I was a student of James Buchanan and not only his work in political economy and social philosophy, but in public economics. At NYU, I taught graduate seminars not only in comparative economic systems, but also Public Choice and Public Finance throughout most of the 1990s. Lin Ostrom had published Governing the Commons (1990), and Vincent had published The Meaning of Democracy and the Vulnerabilities of Democracies (1997), but they had also pioneered work on the "institutional analysis of development".
It was during this time that I met and eventually worked with Paul Dragos Aligica. One of our first projects was on Global Economic Development and the role of private enterprise and entrepreneurship in generating economic prosperity in developing and transitioning economies. It is in this work that we focused on the blending of public choice (Buchanan), Austrian economics (Hayek-Kirzner), and the Bloomington School (Lin and Vincent Ostrom). I edited a special issue of JEBO (2005) to highlight the contributions of Lin and Vincent, and Paul and I published our book summarizing the contributions of the Ostroms, Challenging the Institutional Analysis of Development: The Bloomington School (2009). A significant part of that book was a reconsideration of the municipalities debates that the Ostroms were involved in during the 1960s and early 1970s. I published with Chris Coyne and Pete Leeson a reassessment of the subsequent literature in this debate and after in a paper on Quasi-Markets in Public Choice, but that paper was more conceptual and analytical. But in a series of papers with Jayme Lemke and Liya Palagashvili, we engaged in a reassessment of the empirical work in local public economics with a focus on the delivery of policing services.
Back to the original impetus for this line of research as laid out here -- the distinction between de facto and de jure rules that govern the economic interactions of individuals in any given society -- it is vital to remember that if we pursue catallactics (study of exchange), then the subject of our studies is exchange and the institutions within which exchanges take place. With all the limitations noted, I always thought that the most operational definition of institutions was the formal (de jure) and informal (de facto) rules of the game and their enforcement. Governance is a vital aspect of social order -- do note I said governance. Covenants with and without the sword. But for agreements to be enacted their enforcement must be secured. The protection of persons and property is something Adam Smith noted long ago, and Edward Stringham notes often today. But precisely how are the institutions structured so that a norm of protection and security of persons and property governs the relevant jurisdiction?
So we head back to the municipalities debate -- what are the responsibilities of the public sector, who is responsible for the services to be rendered, and how are they going to be paid for? The Ostroms stood against the consolidationist movement and in particular UNIGOV. They championed instead a polycentric system of governance that put more direct authority in local communities and citizens, and held the public entities to be responsive to the demands of the local communities. Jayme, Liya and I published a series of papers individually, jointly and in different combinations over the past decade looking at policing services and the frustrations with the failure of these services to meet the demands of the local communities that they supposedly serve. What the Ostroms have to say about ways to improve policing has tremendous relevance for today's discussions. Consider this essay by Rashawn Ray, "Bad Apples Come From Rotten Trees in Policing", and what solutions would both be desirable and feasible. Fixing the problem is imperative, doing so in a way that actually achieves the goal must become paramount.
Please watch this video with Jayme and Liya discussing our work, and also look out for work by Tate Fegley, who just defended his PhD and also works on the thorny issue of policing.