Meanings of Rationality in Public Administration and Public Policy: An Examination of

Elinor Ostrom’s Work

A paper prepared

for

The 2011 Annual Conference of the Public Administration Theory Network

by

Larry S. Luton

Eastern Washington University

lluton@ewu.edu

509.828.1231

Abstract

In 2009 Elinor Ostrom was awarded the Nobel Prize in Economics for her work in

analyzing economic governance. Her work (and the work of those who have collaborated with

her and built upon her and her husband‟s theoretical perspective) is often characterized as being

based on rational choice theory. It has had, and continues to have, significant impacts upon the

field of public administration. Consequently, Elinor Ostrom‟s treatment of rationality provides

an important angle into understanding what that concept has meant to and in the field. This paper

reviews her work, describes, and evaluates Elinor Ostrom‟s treatment of “rational” choice theory

and finds that she does not consider choice to be simply rational.

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Meanings of Rationality in Public Administration and Public Policy: An Examination of

Elinor Ostrom’s Work

Larry S. Luton

Eastern Washington University

In 2009 Elinor Ostrom was awarded the Nobel Prize in Economics for her work in

analyzing economic governance. Her work (and the work of those who have collaborated with

her and built upon her and her husband‟s theoretical perspective) is often characterized as being

based on rational choice theory. Established by Elinor and Vincent Ostrom in 1973, The

Workshop in Political Theory and Policy Analysis has been central to their work on public

choice theory. The Workshop and its generation and refinement of the Institutional Analysis and

Development (IAD) model have had, and continue to have, significant impacts upon the field of

public administration. Consequently, Elinor Ostrom‟s treatment of rationality provides an

important angle into understanding what that concept has meant to and in the field. This paper

reviews her work, describes, and evaluates Elinor Ostrom‟s treatment of “rational” choice theory

and finds that she does not consider choice to be simply rational.

Ostrom and Rational Choice Theory

Elinor Ostrom‟s identification with rational choice theory is well-founded. In 1971 she

and her husband, Vincent, published an article in Public Administration Review promoting public

choice as a way to study public administration. In that article, they expressed an interest in

applying economic reasoning to our field (Ostrom & Ostrom, 1971, p. 203). They traced the

heritage of public choice theory from Wilson‟s view of the connection between hierarchy and

efficiency and Simon‟s work to establish “efficiency as a norm for evaluating alternative

administrative actions” (Ostrom & Ostrom, 1971, p. 204) and contrasted it to the use of benefit-

cost analysis and PBB.

In public choice theory, the assumption of a “rational economic man” is reconfigured into

an assumption of a “rational decision maker” (Ostrom & Ostrom, 1971, p. 205). That decision

maker is seen as dealing with choices related to public goods within certain kinds of decision

structures. The consequences of those choices are evaluated using the efficiency criterion. The

decision maker is assumed to be a rational, self-interested maximizer operating in one of several

levels of information possession: certainty, risk, or uncertainty. Recognizing that uncertainty is

the most likely situation, public choice theory allows the decision maker to learn from

experience. Spill-over effects, or externalities, are also recognized as commonplace, but the

decision makers are assumed to ignore them in pursuit of their own advantages. They also limit

information about their preferences and put others in a more difficult decision making situation.

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In common pool resource situations, the dynamics involved with this combination of

assumptions compute into a prediction known as the tragedy of the commons (Hardin, 1968) and

underlay the problems of collective action identified by Olson (1965). But, as Ostrom and her

colleagues have found, there are many instances where people successfully surmount those

problems and the tragedy (Ostrom, 2010, p. 654; Poteet, Janssen & Ostrom, 2010, p. 39). In

commons situations as varied as Atlantic fisheries, English open fields, and indigenous irrigation

systems, people have demonstrated that it is possible to avoid the results predicted by rational

choice theory. Consequently, Ostrom and her colleagues have taken on the task of developing a

better theory of public, collective choice.

That effort has resulted in the still-evolving IAD framework which challenges “the

assumption that human behavior and outcomes are entirely based on a small set of irreducible

building blocks” (Ostrom, 2010, p. 646). The most general elements in the framework are an

action situation, interactions, outcomes, and external variables (biophysical, community, rules)

[see figure 2 in Appendix]. “At the core of the IAD framework is the concept of an action

situation affected by external variables” (Ostrom, 2010, p. 646). The action situation contains

actors, positions, actions, information about and control over potential outcomes, net costs and

benefits, and the linkages among those elements [see figure 3 in Appendix]. Working with this

framework, Ostrom has concluded that the traditional rational choice assumptions “hide the

potentially productive efforts of individuals and groups to organize and solve social dilemmas”

(2010, p. 648). In her view the empirical condition varies from action situation to action

situation.

If we examine some of the ways that she has indicated the elements of the empirical

conditions and action situations may vary, we find her recognition of existential complexity and

variety carries much meaning for her work. Dividing our treatment of this into two large

categories, human behavior and contexts, let‟s first see what she has said about human behavior.

She has identified numerous ways that individuals in an action situation may vary—ways that

affect their behavior. They include: gender, sociability, pride in local community, factors

affecting and levels of enjoyment, levels and kinds of guilt, shame, and sense of obligation,

competitiveness, inclination toward cooperation, confidence in leaders, and entry or exit

capabilities. It would be quite a stretch to characterize those variables as rational. Whether

someone is male or female is not a function of reason. Although enjoyment may partly be

rational, sociability and pride are less clearly so. Guilt, shame and confidence are often quite

non-rational, if not irrational. And this is just the beginning of their list of non-rational variables

that factor into choices we make.

Quite importantly for her research using game theory, she also has explored the many

ways that people vary in their inclination to trust others and their willingness to take risks. The

relationship between trust and risk has been central for much of the rational choice research

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using game theory experiments. Ostrom and her colleagues recognize that willingness to trust is

not simply a function of utility maximization. People “enjoy the act of trusting and being kind to

others, even to anonymous strangers” (Walker & Ostrom, 2009, p. 96, quoting Ashraf, Bohnet,

and Piankov, 2006, p. 204). Some might argue that maximizing pleasure is a rational behavior,

but not only does individual pleasure affect choice, so do cultural norms. In one study, she

concluded that willingness to trust varied from society to society—i.e., is affected by cultural

norms (Hayashi, Ostrom, Walker & Yamagishi, 1999). Specifically, she found that trust and a

sense of control impact choices differently in Japan and the US, with the level of trust lower

among the Japanese—19% saying that “people try to be helpful” compared to 47% of the

American respondents (Hayashi, Ostrom, Walker & Yamagishi, 1999, p. 34). It is probably not

necessary to point this out, but whether a person is Japanese or American is not a function of

rationality. She also has recognized that face-to-face communication (aka, “cheap talk”)

frequently increases individual‟s assessment of others‟ credibility and that can lead to higher

levels of trust (Ostrom, 2010, p. 656). Perhaps even more fundamental, she and her Workshop

colleagues have concluded that people simply have varying “other regarding preferences” and

“motivational heterogeneity” (Ostrom, 2010, p. 656).

Moreover, as may be implied from the above, people‟s willingness to trust may be

affected by experience. Whether promises have been kept or broken will affect individuals‟

levels of trust. Whether others have reciprocated one‟s demonstrations of trust will affect a

person‟s trust level (Walker & Ostrom, 2009, p. 107). In other words, people are capable of

learning from experience and changing their behavior accordingly. Some of that learning may be

rational, but some may well be emotional or affective in character.

Individuals‟ behavior and willingness to trust can also be affected by context. The more

complex the context, the less likely people will be willing to trust and cooperate. If there are

significant external stresses (e.g., a water shortage), people are less likely to trust and will behave

accordingly. Other contextual factors may vary quite a bit, and those variations will also affect

the behavior of individuals. Among them are institutional rules. “[W]e found an incredible array

of specific rules used in different settings” (Ostrom, 2010, p. 651), including seven broad types

of rules and multiple variants of each type, for example 27 boundary rules and 112 different

choice rules. To further confound matters, “the specific rules associated with success or failure

varied extensively across sites” (Ostrom, 2010, p. 652). Rules might be about such things as

ways of communicating, sanctions, incentives, or conflict resolution mechanisms. Also important

is the degree of local control and the ways in which local governance arrangements are nested

within multiple layers of larger governance systems. Finally, norms of fairness and reciprocity

will impact trust and cooperation. If there is asymmetry in the relationships, if some benefit more

than others in ways that violate an individual‟s norm regarding fairness, lower levels of

cooperation will result (Walker & Ostrom, 2009, p. 110).

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So, it is clear that Ostrom is serious when she concludes that “Individual differences do

make a difference” (Ostrom, 2010, p. 660), but as the above implies individuals cannot be

understood outside of the context in which they confront an action situation. So, she also

concludes that “the context of interactions also affects behavior over time” (Ostrom, 2010, p.

660). So, now let‟s look at the ways that she has indicated contexts may vary.

Beginning at the individual relationship level, Ostrom‟s research provides evidence that

knowledge of others‟ actions (Walker & Ostrom, 2009, p. 109) impacts the behavior of

individuals. Social connections impact individual behavior. More specifically, her experiments

demonstrate that unconditional cooperators appear to positively influence cooperative behavior

on the part of others (Walker & Ostrom, 2009, p. 101). Referencing Dean Karlan‟s social capital

hypothesis of trust (2005), she says “Higher levels of trust emerge when both players are

indigenous, live near their partner, and attend the same church” (Walker & Ostrom, 2009, p. 97).

We take cues about proper behavior from those around us. Such social relations are way too

complex to be conceived of as fully rational.

We also take cues from our information about other contextual elements: “Individuals . . .

[are] affected by a broader set of contextual variables related to the attributes of the social-

ecological system (SES)” (Ostrom, 2010, p. 662). Among the SES variables that she has studied

are: the condition of the resources being impacted, their size, productivity, predictability, and

mobility. Also part of the SES are the people; so their attributes—e.g., number, leadership—

factor into the dynamics as well. So are the rules according to which they have agreed to behave.

Other contextual factors include, time horizons—how long do we expect to be dealing with these

people or using these resources? Finally, the ability of individuals to alter the external variables

with which they must deal (Ostrom, 2010, p. 648) affects their behavior. Clearly, all of these

variables and their impacts on choices can be described in rational calculus terms, but I think it is

fair to say that Ostrom would not be fully satisfied with any approach that characterized them in

traditional rational choice (or public choice) terms. She has explicitly concluded that “contextual

influences … go beyond those that can be explained by purely pecuniary motives” (Walker &

Ostrom, 2009, p. 94). This is a direct rejection of the utility maximizer aspect of rational/public

choice theory.

Thus, it is rather clear that Ostrom and her Workshop colleagues have rejected

foundational aspects of rational choice and public choice theory. “We now know that the earlier

theories of rational, but helpless, individuals who are trapped in social dilemmas are not

supported by a large number of studies using diverse methods” (Ostrom, 2010, p. 659). They

have found that the assumptions of rational and public choice theory regarding possession of

information about available actions, likely choices of others and probabilities regarding

consequences deriving from choices are not very often applicable. Central to their research on

collective choices about common pool resources, they have concluded that “The classic

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assumptions about rational individuals … hide the potentially productive efforts of individuals

and groups to organize and solve social dilemmas” (Ostrom, 2010, p. 648). They have rejected

rational choice theory because it most often fails to explain individual behavior and it cannot

explain how in some common pool resource situations people do collectively make choices that

treat those resources in sustainable ways (Walker & Ostrom, 2009, pp. 114 & 118).

Nonetheless, it would not be accurate to suggest Ostrom and her workshop colleagues

have entirely rejected traditional rational choice theory. They have found that its applicability is

rather severely limited. “[W]hat is called „rational choice theory‟ is not a broad theory of human

behavior but rather a useful model to predict behavior in a particular situation—a highly

competitive market for private goods” (Ostrom, 2010, p. 659). In dealing with public goods,

traditional rational choice theory only works “where individuals do not know one another, cannot

communicate effectively, and thus cannot develop agreements, norms, and sanctions” (Ostrom,

Gardner, & Walker, 1994, p. 319). So, even though they have not entirely rejected rational

choice theory, they have so restricted their view of the conditions within which it can usefully be

relied upon that it is clear they no longer see it as a theory with much promise in the field of

public administration. In public administration people do know one another, do develop

agreements, norms and sanctions, and often communicate effectively.

The Rational Researcher

So, if Ostrom and the Workshop are no longer proponents of rational choice theory, is

there some way in which they remain committed to rationality? I think the answer is, yes—and it

is a traditional, scientific method version of rationality. However, even this support of scientific

rationality is qualified by a recognition of the value of non-scientific field research as a way of

judging whether the experiments are sufficient—whether they are missing something important

or misleading us in some way.

Ostrom has argued for the value of multiple, mixed methods research (Poteete, Janssen,

& Ostrom, 2010) and shown a personal affinity for three kinds of research: case studies,

laboratory experiments, and formal frameworks. She recognizes that deductive, nomological

methods indicate that the researcher has a mechanical view of the world, not allowing for

evolutionary changes or intentional, creative agency. She views qualitative case studies as having

both substantive and theoretical value. Among the benefits she recognizes derive from case

studies are: examination of complexity, tracing of chronological events, appreciation of

multidimensionality and causal heterogeneity, and recognition of variation.

It was through case studies that it first became apparent to her that traditional rational

choice theory was not reliable (cf. Baden & Noonan, 1990). According to rational choice theory,

when people found themselves in common pool resource dilemmas, they were fated to overuse

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the resources in a dynamic known as the tragedy of the commons. Case studies made it clear that

this kind of tragedy was not inevitable (Poteete, Janssen, & Ostrom, 2010, p. xxii). “The

existence of a large number of cases where users had overcome social dilemmas in order to

sustain long term use of common-pool resources successfully challenged the presumption that

this was impossible” (Ostrom, 2010, p. 654).

She and other Workshop participants have spent much of their time working on

developing laboratory experiments that also provide evidence that people are not simple utility

maximizers. “The main goal of experiments is to test well-defined hypotheses under controlled

conditions” (Poteet, Janssen, & Ostrom, 2010, p. 142). In that controlled environment voluntary

participants receive instructions on the decisions they may make and make their decisions in

private. One advantage she ascribes to experimentation is that it is able to support

generalizations, something for which case studies are not suited. Obtaining laboratory results that

were consistent with what was found through case studies further supported their rejection of

traditional rational choice theory. But laboratory experiments lack external validity and “it is

never possible to establish a perfect experiment” (Poteet, Janssen, & Ostrom, 2010, p. 143).

Moreover, laboratory experiments can only address extremely limited circumstances, so

their ability to ability to contribute to the field‟s body of knowledge is also quite circumscribed.

“It is not feasible to develop a formal game (or even an Action Based Model) to analyse the more

complex empirical settings with many variables of relevance affecting outcomes and of

importance for institutional analysis. It is possible … to develop structured coding forms for data

collection and analysis” (Ostrom, 2010, p. 647). This is why Ostrom also works on formal

framework development.

They would characterize the kind of formal framework upon which they have focused

their efforts as an “agent-based model” (Poteet, Janssen, & Ostrom, 2010, ch. 8). There are a

number of agent-based models under development, all of them in very early stages of

development. Their fundamental purpose is to add external validity to the internal validity they

have attained with experimental studies.

The formal framework that she and her colleagues have been working on for years is the

Institutional Analysis and Development (IAD) framework. Believing that the behavior of

individuals is influenced by “microsituational variables, which in turn are influenced by broader

contextual variables” (Poteet, Janssen, & Ostrom, 2010, p. 220) they designed their model to

formalize the linkages among all the variables. The number of variables they are trying to

include in their model is impressive: there are at least 11 structural variables in the

microsituation [see figure 9.5 in appendix], and that is embedded within a first tier of the

framework that includes 33 variables and a second tier that includes another 10 variables [see

figure figure 9.7 and table 9.1 in appendix]. Finally, they state explicitly that “The list of

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variables, as well as the identification of subcategories of variables, is likely to grow over time”

(Poteet, Janssen, & Ostrom, 2010, p. 231.)

Beyond the detailing of the variables and properly modeling the connections among

them, Ostrom and her colleagues recognize that “linking the observations from field studies,

experiments, and agent-based models presents a major challenge” (Poteet, Janssen, & Ostrom,

2010, p. 194). The optimism and determination that they have shown in painstakingly working

on the IAD framework and its numerous components and levels is a testament to their faith in the

rational study of human choice making.

Conclusion

In her acceptance speech for the Nobel Prize, Ostrom looked back over her professional

life and concluded that “The most important lesson for public policy analysis derived from [my

intellectual journey] is that humans have a more complex motivational structure and more

capability to solve social dilemmas than posited in earlier rational-choice theory” (Ostrom, 2010,

p. 664). She clearly has an amazing amount of confidence in the prospect of rationally designed

scientific research into public and collective choice dynamics to enhance knowledge in our field,

and given her recognition of the complexity of decision making in her area of interest, collective

decision making in common pool resource situations, this is no small matter—but she is not a

rational choice theorist.

References

Ashraf, N., I. Bohnet, and N. Piankov. 2006. Decomposing trust and trustworthiness.

Experimental Economics 9(1): 193-208.

Baden, J.A., and Noonan, D.S. (eds.). 1990. Managing the Commons, Second Edition.

Bloomington, IN: Indiana University Press.

Hardin, G. 1968. The tragedy of the commons. Science, 162(December 13): 1243-1248.

Hayashi, N., Ostrom, E., Walker, J. & Yamagishi, T. 1999. Reciprocity, trust, and the sense of

control: A cross-societal study. Rationality and Society, 11(1): 27-46

Karlan, D. 2005. Using experimental economics to measure social capital and predict financial

decisions. American Economic Review 95(5): 1688-699.

Olson, M. 1965. The logic of collective action. Cambridge, MA: Harvard University Press.

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Ostrom, E. 2010. Beyond markets and states: Polycentric governance of complex economic

systems. American Economic Review 100(June 2010): 641-672.

Ostrom, E., Gardner, R., & Walker, J. 1994. Rules, games, and common-pool resources. Ann

Arbor, MI: University of Michigan Press.

Ostrom, E. and J. Walker (eds.). 2003. Trust and reciprocity: Interdisciplinary lessons from

experimental research. New York: Russell Sage Foundation.

Ostrom, V., & Ostrom, E. 1971. Public choice: A different approach to the study of public

administration. Public Administration Review, 31(2): 203-216.

Poteete, A.R., Janssen, M. A., & Ostrom, E. 2010. Working together: Collective action, the

commons and multimple methods in practice. Princeton, NJ: Princeton University Press.

Walker, J., and E. Ostrom. 2009. Trust and reciprocity as foundations for cooperation, pp. 91-

124 in Karen S. Cook, Margaret Levi, and Russell Hardin (eds.), Whom Can We Trust?

How groups, networks, and institutions make trust possible. New York: Russell Sage

Foundation.

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APPENDIX