Economics
College of Humanities and Social Sciences

Polycentricity and the Theory of Order

Ion Sterpan

Major Professor: Peter J Boettke, PhD, Department of Economics

Committee Members: Richard E Wagner, Paul Dragos Aligica

Mason Hall, #D135
July 14, 2017, 09:00 AM to 11:00 AM

Abstract:

This work explains social order as the outcome of governance systems' capacity to use dispersed knowledge. A governance system is “polycentric”: it has many centers of action, which are formally independent but gain functional interdependence when they operate under an overarching set of rules. The idea is not new. Vincent Ostrom and Michael Polanyi used the concept to capture an isomorphism between social systems like market, common law, and science, and Karl Popper and Friedrich Hayek have suggested that such mechanisms should be understood in terms of how they handle knowledge. The contribution lies in how the idea is developed. The development starts from P.C. Robert's suggestion to abandon the question of monocentricity versus polycentricity and focus on the kinds of connections present in different polycentric systems.

The first chapter tracks the process by which systems handle knowledge across two levels, the infrastructure and the superstructure. The infrastructural level is made of human associations and the superstructure made of information bits. Knowledge is produced in the infrastructure, projected unto, and transmitted along a spontaneously emerged superstructure to which members can connect. We identify the specific infrastructural protocols of associations for the market, precedent based law, public discourse, and these systems' superstructures, which spontaneously emerge upon infrastructural play by the rules. We then propose an understanding of governance, including competitive governance, as a system subsuming these associations along with a political residual.

The second chapter applies the idea of polycentric competitive governance to institutional development. A system can generate legal rules able to coordinate many complex interests and thus achieve order, only if it allows massive knowledge production, knowledge filtering and pooling onto an informational superstructure. Because demanders of rules make informed choices of rules only with feedback from prices, the best filter for legal rules must be a market for rules. This suggests that a market process for rules must be what accounts for the efficiency of Western common law rules. Indeed, such a process started in the 9th to 11th century when the ecclesiastical court system competed with the royal court system. That process would not have been possible without rival suppliers of rules with independent violence potential. mainstream institutionalism's claim that a necessary condition to successful transitions is a consolidation of organized means for violence under a compact concluded by elites.

The third chapter examines the residual element in governance: the political. While standard economic theory is tempted to reduce political relationships to exchange relationships, preference satisfaction (as with the application of a welfare function) and preference violation (coercion), we argue that this reduction is not justified. One source of political relationships, in the form of Wieser's leader-follower associations, is the realm of the exception to rules and established routines, and in the way in which individuals react to the indeterminacy of their subjective choice data. When the realm of exception opens wide, leader-follower associations provide fast and effective coordination. However, in normal times, political network assemblies are likely to bring discoordination and disorder due to the secant and volatile nature of their rules of association, their fragmentation of knowledge production processes, and their natural inability to give rise to superstructures for knowledge transmission.

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