The Vital Role of Norms and Rules in Maintaining Open Public and Private Economies

Free Enterprise: Values in Action Conference Series, 2005-2006

MORAL MARKETS: THE CRITICAL ROLE OF VALUES IN THE ECONOMY, Paul J. Zak, ed., Princeton University Press, 2007

41 Pages Posted: 14 Sep 2006

See all articles by Elinor Ostrom

Elinor Ostrom

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA); Indiana University Bloomington - Department of Political Science

David Van Martin Schwab

Indiana University Bloomington

Abstract

This paper argues that trust-enhancing institutions are needed to support economic activity, and shows that these institutions become more complex to deal with information asymmetry among economic actors. Using Crawford and Ostrom's (2005) institutional grammar, it tracks the development of trust-enhancing institutions from a theorized "state of nature" where actors can only rely on shared strategies, to the development of norms to stabilize expectations, and finally to the rise of the rule-based institutions such as the Law Merchant as a means to handle more complex informational asymmetry. The paper concludes with recommendations for sound institutional design, suggesting that improper design can "crowd out" people's natural sense of trust and result in failure to achieve desired outcomes.

Suggested Citation

Ostrom, Elinor and Schwab, David Van Martin, The Vital Role of Norms and Rules in Maintaining Open Public and Private Economies. Free Enterprise: Values in Action Conference Series, 2005-2006, MORAL MARKETS: THE CRITICAL ROLE OF VALUES IN THE ECONOMY, Paul J. Zak, ed., Princeton University Press, 2007, Available at SSRN: https://ssrn.com/abstract=928975

Elinor Ostrom (Contact Author)

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Indiana University Bloomington - Department of Political Science

Bloomington, IN
United States

David Van Martin Schwab

Indiana University Bloomington ( email )

Dept of Biology
100 South Indiana Ave.
Bloomington, IN 47405
United States

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