Monday, October 26, 2009

Commons, Nobel prize and decentralization

This year Nobel Prize winner, Mr. Williamson, said that with hierarchical decision-making processes based on rules and authority, firms ought to be less efficient than decentralized market exchange based on relative prices as standard economic theory assumes that transactions occur. But companies do exist, so why? Because any transaction has an implicit cost that enterprises reduces via hierarchical decision-making and authority.

The other winner, Mrs. Ostrom, found that self-governance often worked much better to punished those who take advantage of tragedy of Commons, than an ill-informed government taking over and imposing sometimes clumsy, and often ineffective rules.

This is exactly what Easterly argues, decentralism and down to top creation of institutions, rules and laws makes economic development. Imposing institutions from outside cuts freedom, cuts the local own ideas, cuts entrepreneurship and the unforeseeable process of development.

And last but not least, J. Diamond says a middle point between decentralized societies and centralized ones would be the maximized point of efficiency in a historical economic perspective. China was too much centralized, depending so much on emperors’ decisions. India was too much dispersed leading too battles, wars and conflicts that brought stagnation. Europe instead was a middle point between those two and this would be the reason of its economic achievements. Diamond explains geography was behind centralized/decentralized societies. While (coastal) China is a monotone and easy access territory, Europe was a mixed of accessible lands and a complex relief.

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