Steven N. S. Cheung’s original insight on common property rights is unfortunately overlooked (re 2009 Nobel Prize in Economic Sciences)

I have been reading the ideas of Steven N. S. Cheung for many years and have even written a few blog entries about him and his ideas. So it is my pleasure to repost my professional economist friend Zhaofeng Xue‘s English comment here in my blog. If you read Chinese, also read Zhaofeng’s longer posting “今年诺奖忽视了张五常的原创贡献” (evidences are the same).

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Repost from Zhaofeng Xue‘s English comment (Oct 13th, 1:56pm)

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I think Steven N. S. Cheung’s original insight on common property rights is unfortunately overlooked. The idea Nobel committee awarded on the basis of Ostrom’s 1990 publication can be clearly seen in Cheung’s earlier publication in 1974 and 1987. See the following four piece of evidence. (Zhaofeng Xue, Ph.D. from Mason)

Evidence 1:
Scientific Background on the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2009
http://nobelprize.org/nobel_prizes/economics/laureates/2009/ecoadv09.pdf

Elinor Ostrom (1990) has challenged the conventional wisdom that common property is poorly managed and should be completely privatized or regulated by central authorities. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concluded that the outcomes are often better than predicted by standard theories. [Ostrom, E. (1990): Governing the Commons: The Evolution of Institutions for Collective Actions, Cambridge: Cambridge University Press.]

Evidence 2:
Ostrom, Elinor. “tragedy of the commons.” The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 11 May 2009 doi:10.1057/9780230226203.1729

Policy analysts tend to look for certainty and want to know whether the tragedy of the commons theory is either right or wrong. A more productive approach is to ask under what conditions it is correct and when it makes the wrong predictions. In settings where there is a large group, no one communicates, and where no rights to the resource exist, Hardin’s theory is supported by considerable evidence. There are many settings in the world where the tragedy of the commons has occurred and continues to occur – ocean fisheries and the atmosphere being the most obvious.

Contrary to the conventional theory, however, multiple studies have demonstrated that users have overcome social dilemmas to craft institutions to govern their own resources (National Research Council, 1986; 2002; McCay and Acheson, 1987; Ostrom, 1990; 2005). The possibility, however, that the users would find ways to organize themselves was not mentioned in basic economic textbooks on environmental problems until recently (compare Clark, 1976, with Hackett, 1998). The design principles that characterize robust, long-lasting, institutional arrangements for the governance of common-pool resources have been identified (Ostrom, 1990) and supported by further testing (Guillet, 1992; Morrow and Hull, 1996; Weinstein, 2000).

Evidence 3:
Cheung, Steven N. S. “A Theory of Price Control.” Journal of Law and Economics, 1974, 17(1), pp. 53-71.

Proposition 2: Given the existence of non-exclusive income and its tendency to dissipate, each and every party involved will seek to minimize the dissipation subject to constraints. This will be done either through seeking alternatives in using or producing the good so that the decline in resource value is the lowest, or through forming alternative contractual arrangements to govern the use or production of the good with the least rise in transaction costs, or through the least costly combination of the two procedures.

Evidence 4:
Cheung, Steven N. S. “Common property rights,” M. M. John Eatwell, Peter Newman, The New Palgrave: A Dictionary of Economics. Palgrave Macmillan, 1987,

In the real world, the complete dissipation of rent is rare indeed. … Attempts to reduce rent dissipation go far to explain why common property in its ‘pure’ form is seldom observed. … What is useful and important from the standpoint of economic explanation is to view whatever rent dissipation does occur as necessarily a constrained minimum becasue, under the maximization postulate, each and every individual has an incentive to reduce that dissipation.

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