Guest Post On Institutional Change: Ian Cook

Ian Cook

[NOTE: Our anti-spam software does not like something in Ian’s comment, so he graciously gave his consent to post this as a guest post — ed.]

Unfortunately, I don’t know much about the institutions specifically within the electric power industry, so I imagine this will be of limited help. But, that’s never really stopped me from rambling on.

Ostrom was one of the first things that came to mind after reading through your posts. Though, the book I had in mind was Rules, Games, and Common Pool Resources. Specifically, some of the discussion in the book about the levels at which rules are defined; in the context of altering institutions, she defines “constitutional level” rules that define the boundaries around who can make choices at a collective level. It would seem to me that any serious change would not only come from that level, but have to affect the actions on that level. If the ability to make change at that level is blocked then I would think there would only be a limited space in which the operations of the institution might be able to fluctuate. In my simplistic understanding of the potential principal-agent relationship, the institution would thus simply generally reflect the governing body or group that has control over the constitutional-level rules. The more resistant to change that group is, the less likely real change will be. To discuss the potential for change, Chapter 12 of RG&CPR talks about the potential movement from CPR usage being a PD-style game to an assurance problem-style game. Again, the question of monitoring and information sharing aids this, as you’ve mentioned before.

While it may not be at all applicable, I guess I saw some of this in terms similar to that discussed by Krehbiel in Information and Legislative Organization insofar as one of the problems in institutions (such as Congress) is a tension between the ownership of information and the ownership of the ability to enact change through rule-making (of course, agenda-setting issues also play a massive role). That the group with specific information has a suggestion, and is supposed to be some sort of representation of the the whole institution, is no assurance that their suggestions, whatever their instrinsic value, will be adopted. Perhaps in the case of institutions even outside of congressional control, there is a similar problem of walls existing between those with policy-specific knowledge and those with institutional-change prerogatives. (Perhaps this is blindingly obvious. Just don’t know.) The focus of the bureacrat would be the cost of the operation, rather than on the policy output issues of interest to the policy-specialist.

Though it may be a poor comparison, the differences in approach towards cellular service in Europe and the US came to mind when reading these posts. Europe chose to have a standardized format for cellular service; they opted for uniformity and interoperability. The result was limited ability to react to massive growth in bandwidth usage, higher prices (since the competition was for the phone, not the service), and slower development of technology that pushes the limits (which, I think, is why Europe was always so eager to hear about the “next release” of phones, such as 3G and whatnot). By contrast, the US didn’t standardize. We have lower rates for service, a faster adoption rate for new technology (CDMA, TDMA, etc. and so on), but far less interoperability. We can’t yet buy a soda from a vending machine or pay for metro rides using our phones — a rising practice around the world. to make the connection, the various competiting US service companies understood far better the potential rewards of pushing the service technology, with little governance at the top to tell innovators not to follow certain roads. The European system created a structure that relied on bureaucrats to choose, with their limited knowledge, and did not allow those with specific information to do more than “provide guidance”. I think some of that may be tied to the duration off those in the controlling group. The beneficial increasing returns from having the institution are “misread”, perhaps, and longer-view benefits aren’t counted in. Roll-out in Europe was certainly faster because service was standardized. But the longer-view benefit of faster progress could have been seen, perhaps, as more valuable had not the bureaucrats been more concerned with what happens during their tenure. (Akin to much of what Douglass North has in Institutions, Institutional Change, And Economic Performance.)

If some of these issues do involve US federal institutions, maybe there’s something of value in Paul Light’s work on the “thickening of government”. The pool of people at the top of the institution is getting a lot heavier. That is, the people with constitutional-level control grows and thus the number of people depending on the status quo grows; more importantly, the ratio of those with the ability to change the rules to those who have specific knowledge starts getting much smaller. I can’t imagine that could be good for future change.

Lastly, I suppose another lens might be that of Hart and the question of complementary versus independent assets. Though, in this case, it might be a function of counter-argument. The internet is “controlled” by a loose affiliation of groups; the assets strike me as highly complementary with my cursory knowledge of their various jurisdictions. We’d tend to believe, if the Hart position was applicable in this case, that they would realize efficiencies from organizing into a single “firm” — yet they haven’t, and actively work to prevent such a move.