Blog

I came across this preparing to visit Prof. Plott at my alma mater next week… here’s some snippets from one of his very latest papers; he’s been interested in information aggregation of late.

DECENTRALIZED MANAGEMENT OF COMMON PROPERTY RESOURCES:

For several centuries, villages in the Italian Alps employed a
special system for managing the common properties. The
experiments and analysis of this paper are motivated by an attempt
to understand why that particular system might have been successful
in comparisons with other systems that have similar institutional
features. The heart of the system was a special monitoring device
that allowed individual users to inspect other users at their own cost
and impose a predetermined sanction (a fine) when a free rider was
discovered. The fine was paid to the user who found a violator.
In addition to the replication of the results of others, the paper
finds three classes of results. First, in comparison with a classical
model of identical, selfish agents, the data can best be captured by a
model with heterogeneous and other-regarding preferences where
altruism and especially spite play an important role. Second, the
model with heterogeneous agents suggests that the success of the
institution is related to its ability to turn these individual differences
to socially useful purposes. Third, the model also explains important
paradoxes that can be found in the existing literature.

…

The success of the Carte di Regola system appears to be related to its ability to use the
heterogeneity of preferences to socially advantageous ends. The system also appears to have
a type of robustness against institutional and parameter changes. Notice first that the Carte di
Regola channels attitudes that might normally be considered as socially dysfunctional, such as
spiteful preferences, into socially useful purposes. People with spiteful preferences choose
to monitor and sanction at a monetary loss. But when their preferences are considered as
part of system efficiency, they are the ones who can perform the function most efficiently
and are channeled into the activity for which they have a comparative advantage.

One might think that the Carte di Regola is similar to a system of vigilantes but there are
important differences. In the model, spiteful people do not care who they hurt, they just
enjoy hurting others, so it is important to direct and constrain them. The Carte di Regola
directs them by reserving the judgment of guilt for the courts, as opposed to the vigilantes,
who would be happy to judge anyone guilty. The court convicts a person only when the guilt
is consistent with social purposes. The magnitude of punishment is also reserved for the
courts in the Carte di Regola system, while in a vigilante system the inspector is allowed to
judge and determine punishment. So, the Carte di Regola constrains what the spiteful can do
to the guilty. Thus, there are important differences (OWG, 1992).

The Carte di Regola also channels arbitrary or random behavior toward useful ends. Such
behavior might ordinarily be regarded as dysfunctional from the point of view of economic
efficiency. Mistaken inspections or impulsively random inspections are costly to the
inspector and thus involve efficiency losses, but the fact that inspections take place has
consequences for those who are excessive users of the common pool resource by increasing
the likelihood that a sanction is imposed. Thus random inspection behavior that would
appear irrational helps preserve the commons.