Ostrom and Coase's Criticisms to Standard Approaches

Environmental and natural resource problems are often addressed through top-down regulations that impose uniform standards on polluters. However, this approach can result in excessive costs and inefficiencies when it fails to account for local knowledge, incentives, or trade-offs. Two alternative, bottom-up approaches—associated with Elinor Ostrom and Ronald Coase—offer more flexible and context-sensitive solutions. Ostrom emphasized the capacity of local communities to self-organize and govern common-pool resources through trust, reciprocity, and collective rule-making, especially in settings with small, homogeneous groups and high stakes. In contrast, Coase focused on externalities arising between larger or more diffuse actors and proposed a property-rights framework that facilitates bargaining between affected parties. Rather than always making polluters pay, Coase argued that the optimal outcome depends on the allocation of rights and the willingness of beneficiaries to bear some costs, particularly when transaction costs are low. This reframing treats pollution as a reciprocal problem, not a one-sided harm. Examples such as tradable fishing quotas and cap-and-trade systems for air pollution demonstrate the viability of Coasean mechanisms. These systems incentivize users to internalize environmental costs and find efficient solutions without dictating uniform technologies or behaviors. They also foster innovation and responsibility by linking economic gains to sustainable practices. While not universally applicable, these institutional arrangements highlight the potential of decentralized, incentive-compatible governance structures over rigid regulatory mandates.

[https://www.learnioe.org/video/ostrom-and-coases-criticisms-to-standard-approaches](See more...)