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State? We don't need no stinkin' state!

Although I have neither read Leeson's "The Invisible Hook" nor any of the work by the Nobel Prize winners, I'll give it a try since there is a free book involved.

A fundamental lesson that Leeson draws from his study of "an-arrgh-chy" is that governance doesn't require government: second only to the lesson that bad pirate puns never grow old. Ostrom and Williamson seem to share this insight; it has inspired them to ask questions and pursue investigations that are invisible to those who conceive of society as markets vs. governments. If even among a band of outlaws a set of rules can evolve to govern common goods and public interactions, then one should not be so quick to assume that less violently inclined people cannot achieve something even better.

Leeson, Ostrom, and Williamson also stress the voluntary nature of these arrangements. In other words, even if the market fails, it doesn't follow that liberty has failed.

On a further note:

Hayek made an interesting distinction between law and legislation (which has so far been neglected, to my knowledge, in the debate about how Hayekian Ostrom and Williamson are); he also distinguished between the rules of conduct for the close knit community or family, and the rules of conduct of the "extended order" or marketplace. So I believe Hayek tacitly acknowledged that market processes are not always the answer (and expressly so in the case of the family). The human mind evolved for life in small hunter-gathering communities, and it did so with a battery of tools for solving the commons problem. However, most of these tools (loyalty, guilt, shame, etc.) only work locally, and so institutions that evolve to solve the commons problem tend to break down when forced onto the extended order. From my second hand exposure to Ostrom and Williamson's views, they seem to accord nicely with Hayek in this regard.

Order emerges

Stated briefly:

They point out that individuals may cooperate successfully even within unexpected contexts. Pirates rationally chose to cooperate among themselves in order to obtain the ends they pursued in the particular environment they lived (Leeson). Individuals rationally choose to cooperate by enforcing rules to use common-pool resources wisely (Ostrom). Entrepeneurs rationally choose to start up a firm to serve consumers more efficiently (i.e. cooperation), avoiding transaction costs and so on (Williamson).

In all these cases humanly rational choice –as Prof. Boettke puts it- is involved. To make these individual choices consistent and coordinating, State coercion is not need. On the contrary, free individuals within a favorable institutional framework, able to choose according to their own interests using their local, unique and dispersed knowledge, is needed. For peaceful and prosperous cooperation to take place, there is nothing more important than freedom itself.

Their names all (sort of) rhyme.

A "substance exploration"? "Scholarly responsible"?
Nouns are not adjectives last time I checked.

If you are giving out an award for pedantry I'll take it.

To avoid the tragedy of the commoner and prisoner's dilemmas, we band together and roam the open seas. The king's way and the boss's way are not the only ways! Respect our code and share in the loot. Join us and more riches will be yours.

I believe the common thread that relates Peter Leeson's work in The Invisible Hook to that of Ostrom and Williamson is their shared focus on how individuals can develop institutional solutions to problems that may hinder social cooperation.

Allow me to demonstrate this common thread by briefly summarizing the work of each of these three economists, clearly identifying the primary obstacle to social cooperation they studied and the institutional solutions they identified as having been devised to overcome them.

Peter Leeson – Obstacle to Social Cooperation:Pirates were outlaws and therefore could not rely upon the state to enforce agreements between each other or to enforce various rules of order. Institutional Solution: In The Invisible Hook, Leeson conducts an in-depth historical study to identify the institutions that pirates created to ensure cooperation with one another. For example, pirates created one of the earliest written constitutions.

Elinor Ostrom – Obstacle to Social Cooperation: Common-pool resources are characterized by the inherent difficult of excluding other individuals from their use (common examples include fisheries, pastures, the atmosphere, etc). As a result, these resources are subject to overuse (“the tragedy of the commons”). Institutional Solution: In Governing the Commons, Ostrom reports a number of case studies from around the world of how locals have created institutions to overcome the “tragedy of the commons” and uses these case studies to 8 principals for local, common-pool resource management.

Oliver Williamson – Obstacle to Social Cooperation: Asset specificity (the degree to which assets are specialized to particular individuals or firms) can lead to situations where individuals might want to cooperate with each other, but chose not to because of fear they may give the other part increased bargaining power (the “hold-up” problem). Institutional Solution: Williamson emphasized that this problem can be solved through vertical integration, mergers, etc and is therefore the primary factor in determining the boundaries of a particular firm.

In political terms, the research of these three economists should serve as an effective foundation for arguments in favor of self-governance. Their work suggests that non-state solutions can be found to many vexing, "market failure" problems. As a result, they should all be widely read by proponents for personal liberty.

The work of Peter Leeson, Elinor Ostrom and Oliver Williamson gives empirical evidence to support our faith in the possibility of emergent order. Diverse individuals across history and borders have the information necessary to form cooperative, voluntary arrangements- even pirates! The research is clear: people are able to impose rules and structure upon themselves. Complex and varied "governments" can and do emerge outside of the State. The necessary information and the ideal incentive structures are, quite often it turns out, at the fingertips of the actors on the ground and cannot be replicated by external central command. Pirates do not descend into an-arrgh-chy just because they are extra-state actors. They use pirate-specific knowledge to make effective pirate institutions. Following the conclusions of Ostrom and Williamson's research, this is just as one would expect.

[As an aside- I had the pleasure of meeting Mr. Leeson at a conference last night and had a short exchange with him about the relationship of his work to Ostrom's. Seeing this question today put a big smile on my face, since it was something I was just thinking about]

Pirates rape, pillage and plunder just as voters in a democracy strip ruthlessly the money or goods of others by open violence.

Leeson's work is still a joke though no matter how quick you are to connect it to Nobel winners, Swedish central bankers and their thoughts on economic "science."

Just as there are two Nobel prize winners, I see two broad themes running through Leeson’s work relating to Ostrom and Williamson respectively. The reading of Ostrom that I want to present for this discussion is to frame her work as a response to the old welfare economists. Traditionally, there are three sources of market failure: monopoly, externalities, and public goods. Ostrom shows how we can privately internalize externalities and provide public goods.
In Chapter 3, subsection “No Smoking Please” Leeson lists some of the externalities that pirates were able to successfully internalize. This list includes such activities as smoking, gambling, limiting drunken raucousness, and women. The general theme of such regulations was to limit activities that might strain the crew and impair effectiveness.
The same is true for the provision of public goods. Such examples were that of a workers compensation for injured crew and prizes for spotting potential targets. The goal of these practices was the same, to incentivize individuals to contribute the maximum amount of effort. This is essential in compensating for the problem of shirking that is associated with joint production.
Here, we start to see a connection to Williamson’s work. The reading of Williamson that I am presenting is one where we live in a world where exchange is limited by problems of incomplete contracting. There are mutually beneficial exchanges that could exist, but because of problems like asset specificity or ex post opportunism, these trades never occur. Williamson work shows how these problems can be overcome, a particularly strong example being that of posting a bond or trading hostages.
Leeson’s pirates face the problem of predation. This is overcome by the dual offices of the Captain and Quartermaster. Power is split between the two offices and punishments are clearly defined. The role of the pirate charter or constitution is to create a focal point for collective action. If the Quartermaster is abusive or the Captain attempts to cheat the crew, collective action becomes much easier and The Invisible Hook is replete with stories of crews disposing of abusive leaders.
In summation, Leeson presents us an empirical case where despite the stated problems of markets (externalities, public goods, incomplete contracting), we see a highly successful organization. Ostrom shows how private communities can internalize externalities and provide public goods. Leeson’s work is within this tradtion. Williamson shows how various mechanisms and institutions can overcome the problem of incomplete contracting. Leeson’s work is within this tradition.

What others have said already.

But also interestingly, the pirate ship itself (as described in Dr. Leeson's works) can be viewed as a common resource as their ships were not necessarily owned by any one individual, but the resource was used by the many individuals aboard to further their pooled and thus individual aims. The pirates and more importantly, their ships were a perfect example to follow Ostroms research in which not only was their non-state governance and management of that common resource as effective or moreso than those imposed by the state or even by the strict sense of private property, but that also the pirate ships, given their extralegal constraints, could not rely at all on state management of the commons. Leeson's work highlights some of the particular constraints and institutions that can lead to effective non-state management of the commons.
(Of course, I say this having only read many of Leeson's papers and his book, but not having read any of Ostrom's work. My VERY limited knowledge of her began with the announcement that she won part of the Nobel and then a brief review of blog posts about her and a brief Googling.)

JJudging from the responses, it sounds like we all seem to be thinking along similar lines.

We each recognize that certain obstacles like transaction costs, common property, or operating outside the state could potentially prevent some mutually beneficial exchanges from taking place.

But that institutions have tended to emerge through an evolutionary process to solve these problems. An evolutionary process that explains the unintentional order we all enjoy in our society and that can be relied upon more often than well-intentioned, centrally planned attempts to correct “market failure”.

In other words, we all seem to be saying that the most important thing these three economists have in common is...Austrian Economist Friedrich Hayek (with a heaping helping of Coase mixed in).

Haha imagine anyone thinking that on this blog. :P

I think the most important parallel between the works of Leeson and Olson is, to borrow a phrase used often around here, that "context matters".

Peter Leeson describes, at great length, how institutions that evolved on pirate ships were designed to deal with the particular problems that they faced (harsh punishments if they were caught etc.) but he also goes to great length to point out that these sorts of arrangements won't always appear.

Likewise, in the beginning of her "Governing the Commons", Ostrom remarks that whilst many of the models used to demonstrate the infeasibility of voluntary solutions to CPR problems are logically sound, they're just not applicable to the real world because they fail to take into account the "particular circumstances of time and place". I suppose the best example of this would be Canadian fisheries, the government presumed capable of improving on these but ultimately worsened the situation because didn't have access to the information that the fishers did when they were devising their solutions to the problem (or opportunity).

Whilst I've not read much at all by Williamson, Leeson seems to make numerous references to the problems of transaction costs.

I suppose that all of the works (and as I understand it, especially Ostrom and Leeson) could be seen as works in the Hayekian traditions, expanding the points made in his seminals essays such as "Individualism: True and False" and "Freedom, Reason and Tradition". I remember hearing once that Sowell's "Knowledge and Decisions" was empirical work based on "The USe of Knowledge in Society", I think you could say these works are the empirical elaborations on the essays referenced above.

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