DEVELOPING THE COMMONS?
Ostrom (2011) recognizes that the traditionally proposed government solution to collective action problems associated with agriculture was not available in the US West before going on to argue that local social institutions and norms provide a viable alternative. Indeed, irrigation societies from across the globe often serve as case studies for scholars who study the role of informal norms in governing the use of common-pool resources. Citing examples ranging from Mormon settlers to Hispanic acequias in the American Southwest and elsewhere, Ostrom emphasizes the importance of local knowledge and trust for developing irrigation infrastructure in the western United States.
Ostrom (2011) applies the social-ecological systems approach developed by Ostrom (2007, 2009) to reinterpret the case studies of successes and failures of irrigation projects across the west from Coman (1911). Ostrom recognizes, as does Coman, that the resource problem facing claimants across different settlements on the western frontier were broadly similar, suggesting that different institutional arrangements are responsible for the variation in outcomes. Ostrom compares outcomes under the Desert Land Act of 1877, the California Wright Act, the Carey Act of 1894, and the Reclamation Act of 1902 and concludes that simple dichotomies between private vs. public provision of irrigation works were inadequate for explaining which acts were broadly successful and which were not.
For Ostrom (2011), the defining characteristic for predicting the success of an institutional response to the problem of western irrigation was its ability to capitalize on local knowledge and trust. Coman’s (1911) analysis is replete with examples of failures, but two key successes are Mormon settlements of Utah and a Bureau of Reclamation project in Minidoka, Idaho. Ostrom contrasts these successes to the broad failures of the Desert Land Act and the California Wright Act and concludes that the former created incentives for individuals to seek out and apply knowledge that was crucial for successful irrigation works. Because of the risk associated with such large investments under uncertain conditions, trust between agents was crucial for promoting investment. What is less clear from Ostrom’s analysis is what particular features of the different laws helped to develop this trust or how other institutions might supply it where absent. Indeed, the closing words of her article call for future research in this vein. What, then, are the limits of informal institutions for providing trust?
Hanemann (2014) provides a critical reading of Ostrom (2011) that elucidates the microeconomic structure of the coordination problem facing agents on the frontier. In particular, Hanemann stresses that the fundamental problem facing potential irrigators was access to capital:
Compared to dryland farming, a distinctive feature of irrigation using surface water in the West was its capital intensity. This in the physical nature of the system . . . it was necessary to be able to install the complete system, from reservoir to farmers’ fields, before a single drop of water could be delivered to users. Almost the entire cost of irrigation supply in the West was capital costs. There were relatively few operating costs—water distribution was either gravity flow or pumped using hydropower. It was necessary therefore to find a source of financing up front, well before there was a revenue stream. (Hanemann 2014, 15)
While Ostrom’s focus is on knowledge and trust, Hanemann’s is directed at finance.6 The two are not so different.
Access to finance becomes a knowledge problem and a trust problem in settings where well-functioning markets are absent because without prices, creditors lack efficient signals to direct them as to the best use of their funds. There is a first-order knowledge problem associated with what types of projects might be profitable and where (indeed, both Ostrom (2011) and Hanemann (2014) emphasize migrants’ relative ignorance of irrigated agriculture), but there was also the crucial question of who could be trusted. Indeed, Hanemann’s own analysis emphasizes the collective nature of irrigation works due to the interconnectivity of irrigation systems. Interpreted in this way, Ostrom and Hanemann are asking similar questions through different lenses. But while Ostrom is able to pick out several examples where social institutions were able to supply knowledge and trust, Hanemann notes these are the exception rather than the norm.
Hanemann (2014) provides further clarity by drawing a crucial distinction between the coordination problems associated with developing a physical system of irrigation and managing a system that has already been constructed. While Ostrom (2011) recognizes this distinction in passing, her analysis tends to conflate the two types of coordination problems. In particular, the social-ecological systems approach of Ostrom (2007, 2009) is often applied to existing irrigation societies to understand how individuals coordinate over the use of existing infrastructure. Once irrigation works exist, the problem of irrigation is essentially akin to a classic common-pool resource setting, which Ostrom analyzed extensively throughout her career. This leads Ostrom (2011) to under-appreciate the unique problems associated with investment in water resources on the western frontier.
Both Ostrom (2011) and Hanemann (2014) overlook the importance of the characteristics of irrigators themselves in shaping the emergence of institutions for water development in the West. Hanemann says little on the subject, while Ostrom emphasizes claimants’ homogeneity with respect to their ignorance of how to successfully farm in an arid environment.7 What Ostrom does not address is the large number of claimants in many Western settlements and the degree of cultural heterogeneity among those claimants. This oversight is critical because these characteristics are at odds with fundamental aspects of Ostrom’s (1990) design principles for common-pool resource management.
According to Ostrom (1990) the composition of the users of a resource is a critical component for determining the viability of informal, norm- based solutions to collective action problems associated with common- pool resources. First, having relatively homogenous user groups facilitates cooperation. As Ostrom (1990) notes:
In a setting in which few individuals share norms about the impropriety of breaking promises, refusing to do one’s share, shirking, or taking other opportunistic actions, each appropriator must expect all other appropriators to act opportunistically whenever they have the chance. In such a setting it is difficult to develop stable, long-term commitments. Expensive monitoring and sanctioning mechanisms may be needed. Some long-term arrangements that once were productive are no longer feasible, given their costs of enforcement. In a setting in which there are strong norms against opportunistic behavior, each appropriator will be less wary about the dangers of opportunism. (Ostrom 1990, 36)
Second, successful collective action depends on there being a relatively small group of resource users. Ostrom (1990) identifies the large number of users involved as a factor contributing to the failure of at least five different case studies, for the simple reason that the coordination becomes difficult as groups grow large (Olson 1965; Buchanan and Tullock 1962).
The instances of successful irrigation development in the West identified by Ostrom (2011) and others were broadly consistent with Ostrom’s general requirements for successful management of common-pool resources. As Hanemann (2014)—citing Benson (1982)—notes, “Their [Mormon] settlements were governed ‘by a cohesive hierarchical assembly of individuals. The settlements were able to administer the development of cooperative water projects through the existing church organization. The cooperative attitude among the settlers facilitated the financing of the irrigation projects’” (Benson 1982, 379 cited by Hanemann 2014, 6). Similarly, the Hispanic acequias of the American Southwest that successfully developed irrigation systems did so when they were insulated from the threat of entry by new users (Smith 2016).
Instances of small, stable groups of homogeneous users were the exception rather than the norm in the West. This oversight is odd for Ostrom, but critical in setting apart her success stories as special cases. Indeed, the key successes analyzed by Ostrom and others are rare exceptions to the general rule that the West was a cultural melting pot for misfits from a litany of backgrounds (Hicks and Pena 2003). As Crifasi (2015) makes clear in the case of Colorado, emigrants to the West arrived from across the United States, Europe, and elsewhere.
The sheer number of incoming migrants created significant challenges above and beyond the heterogeneity problem for small-scale collective action solutions built around social norms. In contrast to the eastern United States where land claims were well-established and often dated back to the colonial area, land in the West was up for grabs and distributed to individual parties 160 to 320 acres at a time (Allen 1991; Hanemann 2014; Leonard and Libecap 2016). This created the potential for there to be hundreds of landowners along a given stream or river and precluded informal arrangements from serving as an effective basis for coordination (Leonard and Libecap 2016). Ostrom (1990), Olson (1965), Agrawal (2003), and others all stress the importance of clearly defined user groups built on mutual trust relationships, but these groups were not the dominant social arrangement during the settlement of the West.
The problem of many potential entrants was dynamic in nature during westward expansion because new migrants arrived in several subsequent waves of settlement (Leonard and Libecap 2016). This made the coordination problem even more difficult than the classic “large N” problem because the total number of potential users was not even known when the earliest settlers faced the economic problem of irrigation development. The problem of coordination among a large number of heterogeneous users is indeed quite simple compared to the problem of coordinating with an unknown number of potential users who may or may not arrive at some point in the future.
Ostrom (1990), Libecap (1994), Alston et al. (2012), Smith (2016), and others have previously appreciated the problem of potential entry in the context of common-pool resource problems. Allowing for the dynamic arrival of new users not only creates inter-temporal coordination problems, it also creates the risk that productive investments will attract entry by new users who will dissipate the value of those investments (Leonard and Libecap 2015). Put another way, early settlers in the West could not be guaranteed residual claimancy to their investments via informal institutions because those institutions lacked mechanisms for either excluding new users or incorporating their resource demands in a way that did not make incumbent users worse off.8
Even in settings where strong cultural norms did exist and held promise for barring newcomers from group membership, the physical nature of river systems allowed de facto entry via upstream claiming. In the absence of formal or de facto protections, the water associated with a given irrigation community can always be intercepted upstream, making real enforcement of group boundaries nearly impossible. This type of “leap-frogging” was a real phenomenon that occurred between individuals, companies, and whole communities competing for water in Colorado before the development of the prior appropriation doctrine (Crifasi 2015). The ability of any future claimant to essentially remove the key productive input for communal investments (water), coupled with uncertainty about the number, nature, and even timing of these future claimants undercut communities’ ability to secure benefits for their members through informal cooperation except where social structures that could mediate entry already existed (as in Utah and the acequias).