An Institutional Framework for Policy Analysis and Design

his chapter applies the Institutional Analysis and Development (IAD)

framework to policy analysis and design. The IAD framework is the

collective product of the many and diverse social scientists who have par-

ticipated in the Workshop in Political Theory and Policy Analysis over the

past twenty-ﬁ ve years. The interdisciplinary nature of these collaborations,

the training and interests of Workshop scholars cross every discipline in

the social sciences and a number of disciplines in the physical sciences, has

produced a tool that can be used to analyze and design policy interventions

in a broad variety of political-economic situations. Whereas past descrip-

tions of the IAD framework have focused on its use as a research method,

in this chapter, we develop it as a tool for policy analysts who are evaluat-

ing policy effectiveness, initiating policy reform, or designing new policy

interventions.

The chapter proceeds as follows. The ﬁ rst section deﬁ nes

and motivates the subject of institutional analysis and policy design. The

second section provides a brief overview of the IAD framework. We then

develop a systematic process for policy analysis and design in the third

section. Finally, we provide some examples of policy applications.

Institutional Analysis and Policy Design

Institutions are everywhere, governing our lives in fundamental ways. Yet,

until fairly recently, policy analysis has often ignored the role of institu-

tions in political economic behavior. Public choice scholars are among

the ﬁ rst analysts in the twentieth century to grapple systematically with

An Institutional Framework for Policy Analysis

and Design





MARGARET M. POLSKI AND ELINOR OSTROM

the role of institutions in policy design.

Their analyses have been further

invigorated by efforts over the past ﬁ fteen years to reintegrate the study

of politics and economics as the interdisciplinary specialty of political

economy. Variously known as public choice theory, social choice theory,

and institutional economics, this work has led to a paradigmatic shift in

policy analysis and design from supply-driven approaches, to institution-

ally driven approaches.

Mounting evidence from this work, applied to

myriad public policy matters, suggests that policy work can be substan-

tially improved if we include institutions in our analysis.

Past oversight of the importance of institutions is due, in part, to

the inherent difﬁ culty of analyzing them. Conceptually, institutions are

highly abstract and frequently invisible elements of the policy environ-

ment. Ostrom (1996b) identiﬁ es a number of challenges in this regard.

First, the term “institution” is used in many ways. We deﬁ ne an institution

as a widely understood rule, norm, or strategy that creates incentives for

behavior in repetitive situations (Crawford and Ostrom 1995). Institutions

may be formally described in the form of a law, policy, or procedure, or

they may emerge informally as norms, standard operating practices, or

habits. Alone or in a set of related arrangements, they are mechanisms for

adjusting behavior in a situation that requires coordination among two or

more individuals or groups of individuals (Hurwicz 1994). Because insti-

tutions are fundamentally invisible, shared concepts that exist in the minds

and routines of participants in policy situations, we believe policy analysis

must include a careful survey of how participants actually do things and

why they do them one way rather than another.

Sometimes the terms “institution” and “organization” are used inter-

changeably. It is useful to draw a distinction between these two concepts.

An organization can be thought of as a set of institutional arrangements

and participants who have a common set of goals and purposes, and

who must interact across multiple action situations at different levels of

activity. Like institutions, organizations may be formally or informally

constructed. Thus deﬁ ned, the term organization includes, for exam-

ple, legislatures, government agencies, multilateral organizations like

the United Nations or the World Bank, nongovernmental organizations,

colleges and universities, business enterprises, cooperatives, religious

groups, clubs, social networks, clans, tribes, and families. Organizations

are the product of human effort to order relations by removing uncer-

tainty in repetitive interactions. All organizations (and many institutions)

are formed subject to existing, higher-level institutions. For example, the

organizational form of the US public corporation is prescribed by corpo-

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

rate and tax law. Corporate and tax law have been developed subject to the

constraints of US constitutional law.

Another challenge for institutionally oriented policy analysis is com-

plexity. Few policy situations are simple. Most involve knowledge from

many different perspectives, activities are organized at multiple levels,

and any given policy situation overlaps with other policy situations so that

activities in one situation affect activities in another. No single discipline

addresses all the issues that humans address when they interact in com-

plex social situations. In order to understand what is actually going on in a

policy area, as well as how things might proceed differently, it is important

to incorporate input from multiple disciplines, multiple levels of activity,

and multiple policy situations. One of the reasons for developing the IAD

framework was to provide a common basis for integrating diverse policy

elements and the work of diverse policy analysts.

A ﬁ nal challenge for policy analysts and designers is to avoid taking a

“blueprint approach” (Korten 1980). When facing real policy imperatives,

it is tempting to take a successful policy model as a kind of blueprint, and

apply it broadly, designing new policies according to this blueprint. The

problem with this approach is that the model or blueprint may not work

in a different political-economic setting. In order to intelligently apply

successful models, we must understand (1) the information and incentive

structures inherent to the model, (2) the existing information and incen-

tive structures in the policy situation in question, and (3) the ﬁ t between

the model and policy setting. All policy situations are governed, for better

or for ill, by institutional arrangements that are speciﬁ c to the demands of

a particular time, place, and people. These arrangements are deliberately

crafted (or circumvented) by individuals and groups in order to make inter-

action more predictable by removing uncertainty and reducing risk. Policy

reform that ignores an existing institutional context is doomed to failure.

In sum, institutions delimit capacity for social change. They are

important precisely because they are intentional constructions that struc-

ture information and create incentives to act or not to act in a particular

situation, thereby imposing constraints on the range of possible behavior

and feasible reforms. Interacting with physical and cultural conditions,

institutions create incentives for social behavior. This behavior gener-

ates observable patterns of interaction, which in turn produce policy out-

comes. Hence, if we wish to evaluate, design, or reform policy, we must

have a systematic way to analyze existing arrangements and to generate

and compare alternatives. This brings us handily to a discussion of the

IAD framework.

MARGARET M. POLSKI AND ELINOR OSTROM

An Overview of the IAD Framework

The IAD framework is best viewed as a systematic method for organizing

policy analysis activities that is compatible with a wide variety of more

specialized analytic techniques used in the physical and social sciences. It

does not replace other techniques, but provides a means to synthesize the

work of multiple participants, including those who are directly involved

in the policy situation and have an interest in policy outcomes. The IAD

framework helps analysts comprehend complex social situations and break

them down into manageable sets of practical activities. When applied rig-

orously to policy analysis and design, analysts and other interested partici-

pants have a better chance of avoiding the oversights and simpliﬁ cations

that lead to policy failures.

Figure 2.1 provides a schematic representation of the framework.

After deﬁ ning a policy question or problem, the focus of the analysis is

on behavior in the action arena, which includes the action situation, and

individuals and groups who are routinely involved in the situation (actors).

One objective of the analysis is to identify factors in each of three areas

that inﬂ uence the behavior of individuals and groups in the policy situa-

tion: physical and material conditions, community attributes (culture), and

rules-in-use. Two other objectives are to identify and evaluate patterns of

interaction that are logically associated with behavior in the action arena,

and outcomes from these interactions. This can be a very demanding task,

even for very simple policy situations. However, more than twenty years

of use by Workshop colleagues in all parts of the world investigating many

different social questions, suggests that it is well worth the effort (see

Applications section below).

Applying the IAD framework to policy analysis and design prompts

us to think carefully about a wide assortment of issues that are important

aspects of a particular policy problem. The more comprehensive and pre-

cise our analysis, the better hope we have of designing successful policy

solutions. Many of these issues would be overlooked by technical analyses

that consider a relatively narrow range of closely related factors. It also

provides a means to incorporate diverse participants in policy analysis and

design. Because the framework demands multiple disciplinary perspec-

tives, it holds the potential to produce a very rich understanding of social

situations. And in addition to providing the basis for more effective policy,

this understanding can provide a ﬁ rm foundation for building consensus

for coordinated action. Now let us look at the process of institutional anal-

ysis using the IAD framework.

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

Using the IAD Framework for Policy Analysis and Design

Before we begin our analysis, we must ﬁ rst deﬁ ne a policy issue or objective

as speciﬁ cally as possible and decide how we will apply the IAD framework.

Step 1: Deﬁ ne the Policy Analysis Objective and the Analytic Approach

There are two ways to approach this task. The ﬁ rst approach involves

using the framework as a diagnostic tool and working backwards through

the ﬂ ow diagram to reafﬁ rm or revise policy objectives, evaluate policy

outcomes, understand the information and incentive structure of a policy,

or develop reform initiatives. This approach is best suited to analyzing

well-established policy situations. We begin by isolating a speciﬁ c policy

issue or program, and specifying its objectives. We then observe some

facts about outcomes of activity in the policy arena. The kinds of questions

we ask include:

• What is happening in the policy arena?

• How do observed outcomes compare to policy objectives?

• Which outcomes are satisfactory? Which are not?

• Which outcomes are most important?

Focusing on a particular class of outcomes, we then identify relevant

patterns of interaction. For example, key patterns of interaction in political-

economic analyses typically include market structure, information ﬂ ows,

and the structure of political participation. Some questions we ask include:

Physical World

Community

Rules-in-Use

Patterns of

Interactions

Action

Arena

Actors

Evaluative

Criteria

Outcomes

Figure 2.1. Institutional Analysis and Development framework.

Source: Adapted from Ostrom, Gardner, and Walker (1994, 37).

MARGARET M. POLSKI AND ELINOR OSTROM

• When are these outcomes occurring?

• Where are they occurring?

• Who is involved?

At this point, our backward-ﬂ owing diagnostic analysis leads us

to specify the action arena, physical and material conditions, commu-

nity attributes, and rules-in-use. We approach these analyses, which are

described in more detail later in this section, by asking:

• How are policy outcomes occurring?

For example, imagine that we observe the following outcome of a

publicly ﬁ nanced health care policy: costs have been increasing dramati-

cally over the past ﬁ ve years and these costs are unsustainable given real-

istic assumptions about future public budgets. We would like to reform

existing policy or create a complementary new policy that will balance

the health care budget and still achieve other health care policy objec-

tives. Focusing on the very general problem of rising costs, we narrow

the analysis by making some further observations about patterns of inter-

action, asking which costs are rising most rapidly, when they are rising,

and where they are rising. Data from this analysis leads to description of

the policy action situation. We then deepen the analysis of the action situ-

ation by asking who is involved in generating rising costs; for example,

who receives care, who makes decisions about giving care, who oversees

health care service providers, and so on. Next, we ask detailed questions

about how these costs are generated by investigating physical and material

conditions, community conditions, and rules-in-use.

A second approach to deﬁ ning a policy issue or objective and apply-

ing the IAD framework involves specifying a political-economic activity

and then working forward rather than backward through the framework.

So, for example, we might investigate infant health care. We would begin

by describing the physical and material attributes of infant care, and pro-

ceed through community attributes, rules-in-use, a detailed analysis of the

action arena, patterns of interaction, and outcomes. This approach is best

suited to policy tasks that involve developing new policy initiatives, or

comparing alternative policy designs. The same general questions used

in a backward-ﬂ owing diagnostic analysis are useful in a prospective

analysis.

In either approach, the analysis can be based on empirical observa-

tion of past and present events, hypothetical forecasts and simulations, or

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

a combination of both. Naturally, we recommend that policy analysts take

care to maximize the validity and reliability of their analyses by using gen-

erally accepted investigation procedures. Although we have organized this

chapter following the approach of working forward through the frame-

work, we do not favor one approach over the other. In fact, we have both

sometimes analyzed the components of the framework in idiosyncratic

order, depending upon the particular analytic circumstances we were fac-

ing. Our advice is to analyze each component in the order that makes the

most sense for a particular policy analysis project.

Step 2: Analyze Physical and Material Conditions

Physical and material conditions often inﬂ uence policy action situations

and constrain institutional arrangements in important ways. When we

refer to physical and material conditions, we mean the physical and human

resources and capabilities related to providing and producing goods and

services. These conditions include production inputs like capital, labor,

and technology, as well as sources of ﬁ nance, storage, and distribution

channels. It is important to specify these conditions because they have

signiﬁ cant implications for policy design, politics, and collective action,

which are all critical aspects of the policy-making process. The kinds of

questions we ask to determine the physical and material conditions associ-

ated with a particular policy activity include:

• Focusing on the good or service produced in the policy situation,

what is the economic nature of the activity?

• How is this good or service provided?

• How is this good or service produced?

• What physical and human resources are required to provide and

produce this good or service? What technologies and processes are

required? What are storage requirements, and distribution channels?

• What is the scale and scope of provision and production activity?

Following standard economic theory, the economic nature of a good

or service can be determined by two attributes: (1) the extent to which

access to consumption can be controlled (excludability) and (2) the extent

to which one person’s consumption reduces the supply available to oth-

ers (subtractability). High subtractability implies individual consumption;

low subtractability implies that more than one person will consume the

MARGARET M. POLSKI AND ELINOR OSTROM

good or service at the same time. High excludability implies that consum-

ers will have difﬁ culty consuming the good or service without contrib-

uting to its cost; low excludability implies that consumers may be able

to “free-ride,” consuming the good or service without contributing to the

cost of provision or production (Olson 1965). This classiﬁ cation scheme is

summarized in the matrix in Table 2.1, which shows four broad categories

of goods and services: private, toll, common pool, and public.

Consumption of goods and services is more or less subtractable or

excludable depending upon the physical characteristics of a good or ser-

vice, available production technology, the scale and scope of activity, and

other aspects of the production system including storage and distribution.

Private goods and services do not have a public character: consumption

is perfectly excludable and subtractable. However, many other goods and

services do have a public character. Consider, for example, various forms

of physical infrastructure. Metered energy, water, telecom, sanitation, and

arterial roads are often classiﬁ ed as toll goods. This is because while many

people can use these goods or services at once, there are production pro-

cesses, control systems, and distribution systems that make it possible to

physically control consumption access so that consumers contribute to the

cost of provision and production.

Conversely, isolated roads are an exam-

ple of a public good; they can be used by many people at once and one

person’s use does not subtract from another’s. However, use is not easily

observable, so it is costly to exclude those who beneﬁ t from using these

roads but do not contribute to their cost. When this is the case, there is little

incentive for users to contribute to building and maintaining these roads,

and hence it can be difﬁ cult to develop and sustain them. Consumption of

common pool goods, like grazing lands, ﬁ sheries, and irrigation systems,

poses yet another dilemma—one person’s use reduces the supply available

to others and it is difﬁ cult to physically control access. This combination

of consumption and production characteristics means that these resources

are easily destroyed, often to everyone’s disadvantage.

Table 2.1. Determining the economic nature of a good or service

High excludability Low excludability

High subtractability

Private Common Pool

Low subtractability

Toll Public

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

Having identiﬁ ed the economic nature of the policy activity, we next

differentiate production activities from provision activities. Production

refers to all those activities that involve transforming inputs into outputs.

Provision refers to activities associated with ﬁ nancing and distribution

activities. For example, consider a policy to build and maintain a foot-

path between two villages through a remote grassland. The footpath is an

example of a public good. It is costly to monitor and exclude others from

using the path because it is in a remote area, so we say it has low exclud-

ability. It also has low subtractability: one person’s use of the footpath

does not diminish another person’s use. In fact, the more people who use

the path, the easier it is to maintain it. However, a public good presents a

classic coordination dilemma. Every inhabitant of the area who has a rea-

son to travel back and forth between the two villages beneﬁ ts from a well-

maintained path, yet it is difﬁ cult to act collectively to develop and sustain

it. This problem can be exacerbated by the scale and scope of the activity:

coordinating to provide and produce one relatively short path is easier than

coordinating to provide and produce a very long path or multiple paths.

So, absent some form of coordination to overcome the free-rider problem,

it is unlikely that a footpath will be built and sustained without some form

of intervention. This is where community attributes and rules come in to

play, but we will defer these matters to subsequent sections.

Producing a footpath through a grassy area requires a scythe or some

other piece of equipment to cut the grass, and competent labor to use the

cutting equipment on the particular terrain. Providing a footpath involves

noticing when it is time to cut the grass in order to properly maintain

the path, making arrangements to cut the grass, and ﬁ nancing the cost.

Production costs include the cost of purchasing and maintaining the cut-

ting equipment, training and wages for the operator, and compensation

for the opportunity cost of capital. Those who produce the footpath could

also provide the footpath. For example, those who live in one village

could form a cooperative association to provide and produce a footpath

to the other village. Alternatively, the members of the village could pro-

vide the footpath, but hire someone in the neighboring village who has a

sharp scythe to produce and maintain it. Or members of the two villages

together could provide the footpath, hiring a private contractor who pro-

vides footpath services to a number of villages in the region to produce

and maintain it.

As the foregoing example demonstrates, analyzing the economic

nature of a policy activity and distinguishing between provision and pro-

duction activities tells us quite a lot about which resources, capabilities,

MARGARET M. POLSKI AND ELINOR OSTROM

and coordination mechanisms are required to effectively implement a pol-

icy. This example also suggests that there is not just one way but many dif-

ferent ways to organize these activities. Which way is the “best” way will

depend upon a number of circumstances that are speciﬁ c to a particular

time, place, and people. The IAD framework thus compels us to consider

community attributes.

Step 3: Analyze Community Attributes

The attributes of a community that affect a policy action situation include

the demographic features of the community, generally accepted norms

about policy activities, the degree of common understanding potential

participants share about activities in the policy area, and the extent to

which potential participants’ values, beliefs, and preferences about policy-

oriented strategies and outcomes are homogeneous. The kinds of ques-

tions we ask to determine the community attributes relevant to a policy

action situation include:

• What knowledge and information do participants have about the rela-

tionship among policy-oriented strategies, actions, and outcomes?

• What are participants’ values and preferences with respect to strate-

gies for achieving outcomes, as well as outcomes themselves?

• What are participants’ beliefs about the relationship among policy-

oriented strategies, actions, and outcomes?

• What are participants’ beliefs about other participants’ strategy pref-

erences and outcomes?

Investigating community and cultural attributes is notoriously difﬁ -

cult.

The validity and reliability of our conclusions are frequently contro-

versial. Nevertheless, we believe it is imperative that policy analysts make

an effort to understand the cultural context of policy activity as partici-

pants themselves understand it. The policy and development literatures are

replete with examples of well-intended policy failures that were inconsis-

tent with cultural norms and routines. If these kinds of inconsistencies can

be discovered after the fact, it seems to us that they are potentially discov-

erable before policies are initiated if we carefully integrate sociological,

anthropological, or social-psychological studies in the policy analysis pro-

cess. Consider, for example, the complex set of community attributes that

affect US business policy. Business educators aim to create a consistent

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

business ethos to enhance business performance. They promote a shared

understanding (norms, values, beliefs, preferences) among business pro-

fessionals that management’s ﬁ rst obligation is to maximize the market

value of the company, subject to constraints imposed by its rather diverse

constituency.

The performance measures used by the ﬁ nancial commu-

nity to evaluate and compare business performance reﬂ ect and reinforce

this ethos. These standards include revenue and earnings growth (over-

all, and within strategic business segments), control of operating expense,

debt to equity ratios, return on investment, and whether current stock price

overstates or understates fundamental business value.

While the norm of maximizing business market value appears to be

widely shared by business academics, the business press, and profession-

ally trained business people, a 1996 Yankelovich Partners poll shows that

51 percent of Americans think a business ﬁ rm’s ﬁ rst obligation is to its

employees, and only 17 percent think shareholders deserve highest prior-

ity (Rosewicz 1996). Considering that most Americans are employed by

business and better than 50 percent of all Americans currently own stock

in business corporations, this contradiction has very interesting impli-

cations for policy that affects business incentives to balance competing

demands by employees and stockholders. A policy analysis that fails to

consider these different community attributes will be considerably weaker

than one that is more complete.

Step 4: Analyze Rules-in-Use

The types of rules the IAD framework asks us to consider in an institu-

tional analysis are closely linked to the elements of an action situation.

They are the minimal but necessary set of rules that are needed to explain

policy-related actions, interactions, and outcomes. As we will see in a sub-

sequent section, the types of rules we consider correspond with the clus-

ters of elements we analyze in the policy action situation (Figure 2.2).

This makes sense when we recall that the focus of institutional analysis is

on understanding the formal and informal rules that affect behavior in the

action arena.

When we analyze rules-in-use in the action arena, we concentrate on

the operating rules that are commonly used by most participants and on

the sources of these rules, rather than on rules that can be articulated but

are not widely observed. Taking a representative sample of the population

engaged in the policy activity in question, we want to know what these

MARGARET M. POLSKI AND ELINOR OSTROM

rules are, the source of each of the rules, who observes them and why, and

who does not observe them and why.

The seven types of rules we consider

are: (1) position, (2) boundary, (3) authority, (4) aggregation, (5) scope,

(6) information, and (7) payoff.

We have previously observed that rules are abstract phenomena. Let

us look at a cursory example of an IAD analysis to illustrate how we ana-

lyze rules-in-use. Table 2.2 presents a contrived (and quite exaggerated)

analysis of trafﬁ c policy in two types of metropolitan intersections, based

on one of the author’s subjective experience.

Position rules specify the set of positions or roles that participants

assume in an action situation, and the number and type of participants who

hold each position. In our example, we have drivers, pedestrians, a volun-

tary association (American Automobile Association), and trafﬁ c control

ofﬁ cials. Boundary rules can be thought of as exit and entry rules: they

specify which participants enter or leave positions and how they do so, for

example, rules related to licensing drivers or becoming employed as a traf-

ﬁ c control ofﬁ cial. Authority rules specify the actions participants in given

positions may take, such as the set of rules that governs what a trafﬁ c con-

trol ofﬁ cer may do when s/he stops a driver, or when one driver collides

with another. Aggregation rules determine how decisions are made in an

action situation. For example, a driver entering an intersection controlled

by a trafﬁ c signal decides whether or not to proceed into the intersection

based upon the color of the trafﬁ c light. Scope rules specify the jurisdic-

Figure 2.2. Relationship between rules-in-use and elements of the policy

action arena.

PHYSICAL WORLD

COMMUNITY

RULES-IN-USE

ACTION ARENA

Action Situation

Positions

Participants

Actions & Linkages

Control

Outcomes

Information

Costs & Benefits

1. Position

2. Boundary

3. Authority

4. Aggregation

5. Scope

6. Information

7. Payoff

Actors

Resources

Valuations

Information Processing

Selection Processes

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

tion of outcomes that can be affected and whether these outcomes are or

are not ﬁ nal. Trafﬁ c policy can cover all trafﬁ c intersections in a state, or

it can apply to a more limited class of intersections. Similarly, a trafﬁ c

control ofﬁ cer’s citation can be made subject to appeal in trafﬁ c court.

Information rules affect the amount and type of information available to

participants in an action arena. For example, a rule that makes information

about enforcement of trafﬁ c laws in an intersection available to drivers

Table 2.2. IAD analysis of trafﬁ c policy in two types of metropolitan

intersections

IAD domain Minneapolis Boston

Physical world Four-way square intersection.

Severe winter weather.

Well-marked streets.

Few potholes.

Heavy trafﬁ c.

Four-way trafﬁ c circle.

Moderate snow, ice, and

rain.

Poorly marked streets.

Many potholes.

Congested trafﬁ c.

Community Homogeneous

Communitarian

Heterogeneous

Individualistic

Rules-in-use Pedestrian has right-of-

way.

Otherwise, driver in

intersection has right-of-way.

No trafﬁ c signal.

Drivers enter intersection

when there is no one waiting

in an opposing lane.

Trafﬁ c control is a low

priority for metro police.

AAA campaign to encourage

polite driving habits.

No pedestrians.

Driver in outer lane of

trafﬁ c circle has right-of-

way.

No trafﬁ c signal.

Drivers simultaneously

and continuously enter and

exit trafﬁ c circle using all

available lanes possible.

Trafﬁ c control is a low

priority for metro police.

No AAA campaign.

Action arena — —

Patterns of

interaction

Sequential queuing. Chaotic queuing.

Outcomes Average time through intersection, collisions, property

damage, and so forth

MARGARET M. POLSKI AND ELINOR OSTROM

who routinely use the intersection could affect the way drivers behave.

And last, but not least, payoff rules determine how costs and beneﬁ ts are

meted-out in the action arena. In our example, insurance rules, licensing

rules, and trafﬁ c codes determine who bears the cost of driving violations

in a trafﬁ c intersection and hence, the beneﬁ ts of complying with different

types of rules in the action situation.

We have brieﬂ y described and illustrated how we would use the IAD

framework to analyze rules-in-use in a relatively simple policy action situ-

ation. But many policy questions involve complex systems of interaction.

In these cases, we court policy failure if we limit analysis to single action

arenas. While we cannot hope to fully develop a systemic institutional

analysis in such a short exposition, we can brieﬂ y consider how the IAD

guides us to approach it.

Analyzing Policy Systems

In addition to delving deeply into the factors that affect single action

arenas, the IAD framework helps an analyst to organize and explain behav-

ior in policy systems. Most policy situations are composed of multiple

distinct but overlapping action arenas that are linked sequentially or simul-

taneously, and several levels of rules. Figure 2.3 depicts this complexity.

For example, the system of banking regulation that has evolved over two

centuries in the United States uses ten competing federal agencies, ﬁ fty

state banking commissions, and ﬁ fty state insurance commissions to regu-

late ten different types of ﬁ nancial service enterprises operating in twenty

regulation- deﬁ ned markets related to borrowing, transactions management,

and savings. Banks, consumers, and regulators use myriad competitive and

cooperative strategies in policy action situations, including participating in

ﬁ nancial services markets, organizing to take collective action, lobbying

for private action, lobbying for legislative action, lobbying for executive

action, lobbying for regulatory action, monitoring and enforcing regula-

Physical World

Community

Constitutional-Choice

Rules

Constitutional-Choice

Situation

Collective-Choice

Situation

Operating-Choice

Situation

Collective-Choice

Rules

Operating-Choice

Rules

Figure 2.3. Rules and policy systems.

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

tion, legislating, and taking legal action. In order to understand banking

policy, an analyst must link activity in many different action arenas, and

consider rules at operating, collective choice, and constitutional levels.

It is not always easy to identify relevant action arenas in large, com-

plex policy systems. Continuing with our example of US banking policy,

depending upon the policy question, one might need to analyze scores

of action arenas involving banking, insurance, and investment broker-

age ﬁ rms, credit unions, the market for ﬁ nancial services, trade associa-

tions, public interest organizations, presidential commissions, interstate

governmental commissions, several departments of the US Treasury, the

Board of Governors of the Federal Reserve, the Department of Justice,

the Federal Deposit Insurance Corporation, state banking commissions,

state legislatures and legislative committees, federal legislatures and leg-

islative committees, state and federal courts, the Supreme Court, and the

Bank for International Settlements. The key is to continually narrow the

policy question as much as possible. In systemic analyses, this winnowing

process occurs as the analysis progresses. What we generally ﬁ nd is that

the most relevant arenas readily emerge from a rigorous application of the

IAD framework.

Analyzing Multiple Levels of Rules

Rules are frequently nested in other sets of rules that deﬁ ne how

lower-level rules function. Whenever we address questions about pol-

icy change, we must distinguish three levels of rules that cumulatively

affect the actions taken and outcomes obtained in any policy situation

(Kiser and Ostrom 1982). The ﬁ rst level is the operating level. Operat-

ing rules affect participants’ day-to-day decision making in speciﬁ c politi-

cal and economic settings. The second level is the collective-choice level.

Collective- choice rules determine who is eligible to participate in activity

affecting the operating level, and how operating rules may be changed.

Similarly, constitutional rules determine who is eligible to participate in

crafting collective-choice rules, and how these rules may be changed. At

each level of analysis there can be one or more arenas in which different

types of decisions made at that level will occur. The linkages among these

rules and action arenas are diagramed in Figure 2.4.

Once again, we will use banking regulation to illustrate. Consider the

levels of rules pertaining to the policy action situation in which banks oper-

ate branches in any state in the United States. In this example, the operating

activity is branching across state lines. Until fairly recently, US banks were

not permitted to make this decision. They could collect and analyze infor-

MARGARET M. POLSKI AND ELINOR OSTROM

mation about the possible effects of nationwide banking, formulate a cor-

porate position, meet with other bank ofﬁ cials to strategize about change,

and hire legislative lobbyists, but they could not legally branch throughout

the United States. This was so because collective-choice rules speciﬁ ed

that only state legislatures (who make the rules for state-chartered banks)

and federal legislatures (who make the rules for nationally chartered banks)

could decide whether banks could branch across state lines. Until passage

of the Interstate Banking and Branching Efﬁ ciency Act of 1994, federal

banking law deferred to the states on interstate branching. Hence, state

and nationally chartered banks could only branch across state lines if states

adopted permissive legislation. Under US constitutional rules, states can-

not make rules on behalf of other states. But the US Congress can impose

rules on the states, providing the rules do not violate states’ constitution-

ally guaranteed rights. And so to understand policy change in this action

situation, an analyst must consider the effects of rules at all three levels:

operational, collective choice, and constitutional.

Step 5: Integrate the Analysis

As we previously indicated, the action arena is the focus of policy analysis

and design—it is where the policy action is! The action arena is a concep-

tual space in which actors inform themselves, consider alternative courses

of action, make decisions, take action, and experience the consequences of

Figure 2.4. The linkages among levels of rules and IAD components.

Operating

Rules

Action Arena

Outcomes

Interaction

Physical World

Community

Collective-Choice

Rules

Constitutional

Rules

Level of Rules and Action

Operating Level

Collective-Choice Level

Constitutional Level

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

these actions. Who is present in this situation, the roles they play, the actions

they take, and so on, are all affected by factors in the physical and material

world, the community, and rules-in-use. The action arena has two aspects:

the action situation, and the actors who interact in the action situation.

Action Situation

We integrate an IAD policy analysis by explaining behavior in terms

of the following situational elements:

• What are the positions or roles that actors play in this situation?

• Who are the participants?

• What actions can participants take, and how are actions linked to

outcomes?

• What is the level of control that each participant has over action in

this situation?

• What outcomes are possible in this situation?

• What information about the action situation is available to

participants?

• What costs and beneﬁ ts do participants incur when they take action

in this situation?

For example, when analyzing overharvesting from a common-pool

resource (CPR), we need to know how physical and material conditions,

community attributes, and rules encourage or discourage who and how

many individuals use the resource system; what roles they play when they

use it; what geographic region and which events in that region are affected

by users’ resource consumption; which types of harvesting processes and

technologies are used; whether there are conservation measures such as

open and closed seasons; whether users withdraw resources on their own

initiative, confer with others, or obtain a permit; how much information

users have about the condition of the resource and how their use and other

users’ use affects the resource; and what costs or beneﬁ ts users incur if they

overharvest. Recall that the economic nature of a CPR creates incentives

for users to free-ride on the efforts of others to sustain the resource, which

can lead to degradation (see Table 2.1). A growing body of empirical and

theoretical research suggests that the likelihood of this occurring depends

critically upon the ﬁ t among the physical and material conditions associated

with providing and producing the resource, community attributes, and insti-

tutional arrangements. This work suggests that using the IAD framework to

guide CPR policy analysis and design is a very sensible thing to do.

MARGARET M. POLSKI AND ELINOR OSTROM

Actors

In the IAD approach, it is very important to rigorously analyze the

decision-making capabilities of actors in action arenas. This is accom-

plished by considering the following:

• Resources

• Valuations

• Information Processing

• Selection Processes

Actors’ decision choices are often inﬂ uenced by access to stocks of

capital, labor, knowledge, technology, time, and social inﬂ uence. These

resources endow actors with the capacity to act unilaterally, bilaterally, or

multilaterally, over short, medium, and long time horizons. This capacity

fundamentally determines the relative strength of one actor or group of

actors. The extent to which relative strength may be exercised to circum-

vent or change existing rules is itself a function of higher order institu-

tional arrangements.

Valuations or preferences refer to what it is that an actor wishes to

achieve in a given situation. Human values and preferences are the subject

of considerable theoretical work in psychology, economics, and philoso-

phy. An institutional analyst must either estimate from survey measure-

ments or make intelligent assumptions about preferences in order to

construct a model of decision behavior in the action arena.

We have already noted that decision making is affected by the quantity

and quality of participants’ information. Information processing, the pro-

cesses used to incorporate information to make decisions about actions, is

another element of this analysis. Consciously or unconsciously, we often

assume that participants in a given policy situation are perfectly informed

(or will take the trouble to become so), and that they use rational decision-

making processes.

Many policy professionals are trained to assume that

policy situations can be analyzed as constrained optimization problems.

This sort of analysis often assumes that diverse participants have the same

information, face no uncertainty, and can costlessly overcome innate indi-

vidual differences, formulate mutually acceptable valuations, and assign

probabilities for all inputs to the decision process. Further, that they can

quickly and accurately make these calculations.

Most policy analysts recognize that these conditions are rarely met in

the naturally occurring world, that strictly rational optimization will not

occur, and that policy designs based on these assumptions will fail. In most

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

policy settings, participants have differing amounts of information, endow-

ments, experience, and processing capabilities. Uncertainty is rampant and

preferences are often radically opposed. Search and negotiation impose

substantial costs on coordination, problem solving, and decision making.

These conditions mean that social behavior will have a strategic character

as self-interested individuals square-off with those who have broader social

objectives. While we believe that policies can and ought to be designed

to encourage reconciliation of individual and group interests, as well as

rational decision making, some policy situations are more conducive to

this type of information processing than others. Hence, it is critical that

policy analysts assess the capacity of participants to overcome those fac-

tors that contribute to opportunistic behavior in particular policy situations.

Finally, the selection criteria actors use to order and evaluate one action

alternative with respect to another, is a related consideration. Again, one

must consider the extent to which individual and group decision making

is rational. And rationality is affected by a variety of sociopsychological

factors including the availability of information, education levels, person-

ality differences, nutrition, peer pressure, and so on. Selection criteria are

particularly sensitive to the vagaries of the physical and material world,

community attributes, and existing rules-in-use.

Step 6: Analyze Patterns of Interaction

Once the constraints of the physical and material world, community attri-

butes, and rules-in-use are taken into consideration, patterns of interaction

ﬂ ow logically from the behavior of actors in the action arena. Patterns of

interaction refer to the structural characteristics of an action situation and

the conduct of participants in the resulting structure. In tightly constrained

policy action situations with little or no uncertainty, participants have a

limited range of strategies, and a policy analyst can make strong inferences

and speciﬁ c predictions about likely patterns of behavior. For example,

when there is no limit on the number of people who use a common-pool

resource, or the amount of harvesting activities they can undertake, and

users do not have access to arenas in which to negotiate common resource

management rules, we can safely predict that users will overharvest the

resource and fully dissipate economic surplus (E. Ostrom, Gardner, and

Walker 1994). Similarly, if bankers face intense competitive pressure, tax-

payers guarantee deposits, and regulators relax supervision, we can expect

to ﬁ nd an increase in the riskiness of bank lending (Polski 1996).

MARGARET M. POLSKI AND ELINOR OSTROM

Unfortunately, most policy analysis situations do not generate such

unambiguous patterns of interaction. Rather than make completely inde-

pendent decisions, individuals may make their decisions within the con-

text of community norms that dramatically change the structure of the

situation. Or, they may meet with other stakeholders in the situation to

solve problems. In the process, they may implement production innova-

tions, or design new institutions and organizations. In these situations,

participants often have a broader range of strategies. Further, these strate-

gies can change over time as participants learn about the results of past

actions. When examining these more open, less constrained situations, a

policy analyst is forced to make weaker inferences about patterns of inter-

action. However, well-informed weak inferences can still provide impor-

tant policy information. At times, it is possible to predict patterns that will

not emerge. Narrowing the range of predictions is very helpful in policy

design.

Step 7: Analyze Outcomes

Just as patterns of interaction ﬂ ow logically from a rigorous IAD analy-

sis, insight about outcomes ﬂ ows logically from similarly well-founded

observations about patterns of interaction. When we analyze outcomes,

we are really analyzing the performance of a policy system. Hence, we

need some kind of objective standard or principle for comparison. Some-

times, programs or policies provide these baselines. But in many cases,

we must specify evaluative criteria as part of the policy analysis process.

While there are many potential candidates, we brieﬂ y focus on six com-

mon concerns in political-economic analysis: economic efﬁ ciency, ﬁ scal

equivalence, redistributional equity, accountability, conformance to gen-

eral morality, and adaptability.

Policy design must frequently consider how alternative policies affect

participants’ incentives to produce efﬁ ciently. An outcome is technically

efﬁ cient if the marginal cost of producing a unit of output is equal to the

price. From a social welfare perspective, an outcome is allocatively efﬁ -

cient if the marginal social beneﬁ t equals the marginal social cost. In a

dynamic analysis, an outcome is efﬁ cient if the discounted present value

of net beneﬁ ts is maximized. A less strict but often acceptable efﬁ ciency

standard is cost effectiveness—producing a good or service at the low-

est possible cost. However, many policy issues do not lend themselves to

strict economic evaluation because there are no readily observable market

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

prices for some social goods or services, or because inputs to the produc-

tion process cannot be precisely valued.

The concept of ﬁ scal equivalence is one means to evaluate the equity

of policy outcomes. Fiscal equivalence or proportionality means that those

who beneﬁ t from a good or service bear the cost of providing it in equal

measure to beneﬁ ts received from it. Following this principle, those who

derive greater beneﬁ ts pay more than those who derive fewer beneﬁ ts.

Because perceptions about ﬁ scal equivalence can affect consumers’ will-

ingness to contribute to developing and sustaining a policy initiative, there

must be some way to estimate the value of costs and beneﬁ ts that is accept-

able to this group in order to implement ﬁ scal equivalence as an evaluation

device.

Another principle for evaluating the equity of policy outcomes is

distributional equity. According to this principle, individuals contribute

toward the cost of goods and services based upon their ability to pay for

them. Depending upon the distribution of income in a society, progressive

equity schemes may directly conﬂ ict with those based on the principle of

ﬁ scal equivalence. As with ﬁ scal equivalence, evaluating outcomes on the

basis of the principle of distributional equity requires the ability to con-

vincingly estimate the value of costs and beneﬁ ts.

Another common policy performance criteria is accountability. The

key questions here are (1) the extent to which the policy context facilitates

low-cost information sharing or transparency, (2) the relative capacity or

skill of participants to evaluate the actions of others in the policy situation,

and (3) the extent to which participants have ready access to mechanisms

that permit them to monitor and sanction one another. If there are imbal-

ances in any of these areas, accountability will be impaired. And without

accountability, there is no check on opportunistic behavior.

In addition to accountability, one might also evaluate the extent

to which the policy context fosters conformance to general morality.

Can participants harm each other and go undetected? If they do, do they

obtain high payoffs? Are those who fail to conform to the rules or honor

their commitments penalized? Can people trust each other to play by the

rules?

Finally, one might wish to consider the extent to which the policy

context encourages sustainability through innovation and adaptation in

response to change. Sometimes existing policies impose rigidities. This

is of course the basis for arguing against quota systems and other forms

of tariffs and subsidies. In a more general sense, institutional systems

based on general principles are often thought to permit greater adaptation

MARGARET M. POLSKI AND ELINOR OSTROM

than strictly codiﬁ ed institutional systems. Similarly, policy situations

subject to greater local control might permit greater adaptation in some

sets of circumstances.

Summary

We know this has been a rather quick tour of a complex analytic process.

It may even seem a bit overwhelming. However, we can assure you that

the IAD framework makes policy analysis and design easier, not more

difﬁ cult. Followed rigorously, the end product will be comprehensible to

a wide audience. Further, it can be used by a policy manager to design an

inclusive and participatory policy analysis process. Following is a sum-

mary of the steps involved in conducting a policy analysis based on the

IAD framework.

1. Deﬁ ne the policy analysis objective and specify the analytic

approach

What is happening in the policy arena?

How do observed outcomes compare to policy objectives?

Which outcomes are satisfactory? Which are not?

Which outcomes are most important?

When are these outcomes occurring?

Where are they occurring?

Who is involved?

How are policy outcomes occurring?

2. Analyze physical and material conditions

What is the economic nature of the policy activity?

How is this good or service provided?

How is it produced?

What physical and human resources are required? What technolo-

gies and processes?

What are storage requirements and distribution channels?

What is the scale and scope of provision and production activity?

3. Analyze community attributes

What is the size of the community and who is in it?

What knowledge and information do members have?

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

What are members’ values and preferences?

What are members’ beliefs?

What are members’ beliefs about other participants’ strategy pref-

erences and outcomes?

How homogeneous is the community?

4. Analyze rules-in-use

Position

Boundary

Authority

Aggregation

Scope

Information

Payoff

5. Integrate the analysis

Action Situation

What are the positions or roles that actors play in this situation?

Who are the participants?

What actions can participants take, and how are actions linked to

outcomes?

What is the level of control that each participant has over action in

this situation?

What outcomes are possible in this situation?

What information about the action situation is available to

participants?

What costs and beneﬁ ts do participants incur when they take action

in this situation?

Actors

Resources

Valuations

Information Processing

Selection Processes

6. Analyze patterns of interaction

Structure of economic and political participation

Information ﬂ ows

MARGARET M. POLSKI AND ELINOR OSTROM

7. Analyze outcomes

Efﬁ ciency

Fiscal Equivalence

Distributional Equity

Accountability

Conformance to General Morality

Sustainability/Adaptability

Applications

In the early 1970s, when the IAD framework was ﬁ rst being developed,

Workshop research colleagues were trying to understand how the diverse

paradigms in political science affected the way we thought about pub-

lic administration and metropolitan organization (see V. Ostrom and

E. Ostrom 1971; E. Ostrom 1972; E. Ostrom and V. Ostrom 1986). Then,

for a decade and a half, the framework was used as a foundation to con-

duct an extensive number of empirical studies of police service deliv-

ery in metropolitan areas (see E. Ostrom and Whitaker 1973; E. Ostrom,

Parks, and Whitaker 1973, 1978; Parks and Ostrom 1981; Parks 1984,

1985; E. Ostrom 1975, 1985b; McIver 1978; McDavid 1974). During the

past decade, the IAD framework has been used to analyze common-pool

resources (see, e.g., E. Ostrom, Gardner, and Walker 1994), among many

other policy issues.

In designing empirical studies using the IAD framework, a key ques-

tion has always been the appropriate units and levels of analysis for any

particular type of question (see Gregg 1974). For example, when Ostrom

and Parks studied police services, the police department was only one of

the units of analysis included in this work. Instead, they tried to under-

stand who the actors were in diverse service situations such as imme-

diate response services, homicide investigation, laboratory analysis,

training, and communication services. They found different sets of actors

involved in each of the service situations. In some, citizens as well as

police ofﬁ cers as street-level bureaucrats were key participants. In oth-

ers, they found participants from many different urban service agencies.

They had to examine interorganizational arrangements to understand pat-

terns of interaction and results. Using this perspective, they found highly

structured patterns of relationships where others had found only chaos.

The highest levels of police performance existed, for example, in those

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

metropolitan areas where small-scale, immediate-response units worked

along with large-scale investigatory, laboratory, and communication

units (Parks 1985). Ongoing research by Parks in the Indianapolis area

is providing strong evidence that many of the patterns observed in the

1970s and 1980s are still in evidence in the 1990s. In light of this exten-

sive empirical research, we have a far better understanding of the patterns

of metropolitan organization and local government (ACIR 1987, 1988;

V. Ostrom, Bish, and E. Ostrom 1988; Oakerson and Parks 1988; Parks

and Oakerson 1989; Stein 1990).

The second broad area in which the IAD framework has been exten-

sively applied is the study of common-pool resources. In 1985, the National

Academy of Sciences (NAS) organized a research panel on the study of

common property (National Research Council 1985). Ronald Oakerson

(1992) wrote a framework paper for the panel that was used in the organi-

zation of a series of case studies of how diverse peoples had devised insti-

tutional arrangements related to common-pool resources (see also Edwards

and Steins 1998; Thomson, Feeny, and Oakerson 1992; E. Ostrom 1992a,

1992b). Oakerson’s presentation of the framework has inﬂ uenced an untold

number of studies of common-property regimes in many diverse sectors in

all regions of the world. A revised publication from this conference (Brom-

ley et al. 1992) contains several case studies based on the framework. The

intellectual productivity stimulated by the work of the NAS panel has led

to the formation of an International Association for the Study of Common

Property (IASCP). More than ﬁ ve hundred scholars attended the 1998

meeting of the association held in Vancouver, British Columbia, in June.

The IAD framework has now been used to develop three major data-

bases related to the study of common-pool resources and diverse property

regimes. The ﬁ rst “CPR Database” drew on the cases produced for the

NAS panel and on the extremely large number of individual case studies

that we discovered had been written by historians, sociologists, engineers,

political scientists, anthropologists, and students of environmental science

(Hess 1999).

We used the IAD framework overtly to create a structured

database for appropriation and collective-choice arenas. Schlager (1990,

1994) and Tang (1991) studied approximately ﬁ fty inshore ﬁ sheries and

irrigation systems, respectively, and were able to isolate key rules that

were positively associated with higher performance levels. In Governing

the Commons, Ostrom (1990) was able to draw on the framework and on

an analysis of extensive case studies to examine the design principles that

characterized robust, self-organized institutions for achieving sustainable

resource use over very long periods of time.

MARGARET M. POLSKI AND ELINOR OSTROM

A second database focuses entirely on irrigation systems and has been

used to code more than 175 irrigation systems in Nepal (Benjamin et al.

1994). That database has enabled Workshop colleagues to test many theo-

retical propositions that have long inﬂ uenced policy analysis and design

(see Lam 1998; Schweik, Adhikari, and Pandit 1997; Lam, Lee, and

Ostrom 1997; E. Ostrom 1994, 1996a; E. Ostrom, Lam, and Lee 1994;

E. Ostrom and Gardner 1993). These studies challenged many of the

empirical assumptions used by development specialists who have pre-

sumed that farmers are unable to self-organize and engage in costly col-

lective action without the imposition of rules from external authorities (see

also Thomson 1992). One study found that farmer-managed irrigation sys-

tems in Nepal are able to outperform agency-managed systems in regard

to agricultural productivity when we have controlled for factors such as

size of group, length of canal, and type of terrain (Lam 1998).

The third database is an integral part of the International Forestry

Resources and Institutions (IFRI) research program, which is a major

ongoing research program of the Workshop in Political Theory and Pol-

icy Analysis at Indiana University, and of the recently established Cen-

ter for the Study of Institutions, Population, and Environmental Change

(CIPEC). This program is designed to address knowledge and informa-

tion gaps about how institutions affect the incentives of forest users and

result in substantial levels of deforestation in some locations while forest

conditions are improving in other locations. Six collaborative research

centers have now been established in Bolivia, Ecuador, India, Kenya,

Nepal, and Tanzania, Uganda, and several more will be established in

future years (E. Ostrom and Wertime 1994; Jerrells and Ostrom 1995).

In Uganda, Banana and Gombya-Ssembajjwe (2000) have shown in their

initial studies that the only forests where deforestation is not extensive

are where local institutional arrangements are viewed by local residents

as legitimate and are monitored extensively. In their study of a comuna

in Ecuador, Gibson and Becker (2000) have documented the importance

of distance from a forest as it affects the costs that villagers would have

to pay to actively monitor and enforce rules even when they have full

authority to make and enforce their own rules. In India, Agrawal (2000)

provides an empirical challenge to the presumption of many specialists

that collective action becomes progressively more difﬁ cult as the size of

the group increases from a very small face-to-face group. He shows that

moderately sized villages are better able to generate the labor needed

to protect local forests than are very small villages. Schweik (2000) has

examined the geographic distribution of Shorea robusta, a highly valued

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

species. He found that neither population density of the villages adjacent

to the three forests he studied in Nepal nor predictions from optimal for-

aging theory adequately predict the spatial distribution of the species. The

most robust explanation for the distribution of this species relates to the

institutional rules that allow higher-caste villagers to access their “own”

forests as well as forests located near villages where lower-caste villagers

live but not vice versa.

In addition to these research programs, the IAD framework has also

inﬂ uenced a variety of other studies including those developing models

of social-choice situations and then subjecting them to empirical tests in

experimental laboratories (Herzberg 1986; Wilson and Herzberg 1987;

Herzberg and Wilson 1988; Herzberg and Ostrom 1991). Other policy

questions include rural infrastructure in developing countries (E. Ostrom,

Schroeder, and Wynne 1993; Gerrard and Polski 1998a, 1998b); priva-

tization processes (Walker 1994a, 1994b); development processes more

generally (V. Ostrom, Feeny, and Picht 1993; Thomson 1992; Wunsch

and Olowu 1995); constitutional dynamics in the American federal system

(Jillson and Wilson 1994; V. Ostrom 1994, [1971] 1987) as well as in the

Canadian federal system (Sproule-Jones 1993); linking local and global

commons (McGinnis and Ostrom 1996; Keohane and Ostrom 1995); the

East Asian ﬁ nancial crisis (Polski 1998); and banking runs and panics

(Polski 1996). In addition, the IAD framework has inﬂ uenced the analysis

of a wide range of issues related to how institutions are organized for the

provision and production of education, microcredit facilities, day care, pri-

mary health, fertilizer, and coffee. Empirical work has been carried on in

Bangladesh, Bolivia, Brazil, Cameroon, Canada, China, Costa Rica, Ecua-

dor, Ghana, Guatemala, Hong Kong, India, Indonesia, Ivory Coast, Libe-

ria, Madagascar, Mali, Nepal, Nigeria, Norway, Poland, Russia, Sweden,

Taiwan, Uganda, and the United States.

In closing, we summarize the general categories of policy analysis that

Workshop colleagues have undertaken using the IAD framework:

1. Economic development issues including infrastructure, privatiza-

tion, ﬁ scal policy, credit allocation, health and human services, and

resource management

2. Common-pool resource management including forests, ﬁ sheries,

irrigation, water resources, and grazing

3. Local and metropolitan public services and governance

4. State/Regional/Provincial public services and governance

5. Federal public services and governance

MARGARET M. POLSKI AND ELINOR OSTROM

6. Constitutional design

7. International relations

Further information, bibliographies, and research assistance are avail-

able on the Workshop website (https://ostromworkshop.indiana.edu).

Acknowledgments

We gratefully acknowledge helpful comments on prior drafts of this chapter from

Henning Karcher and Charlotte Hess.

Notes

This chapter was originally a 1999 unpublished working paper from the Work-

shop in Political Theory and Policy Analysis at Indiana University. Figure 2.1

reprinted with the permission of the University of Michigan Press.

1. For discussions of the IAD framework as a tool for research and theoreti-

cal development, see, for example, Kiser and Ostrom (1982); Oakerson (1992);

E. Ostrom (1985a, 1986, 1991, 1996a, 1996b); E. Ostrom, Gardner, and Walker

(1994); and V. Ostrom, Feeny, and Picht (1993). Oakerson (1992) and Oakerson

and Walker (1997) discuss the IAD framework as a policy analysis tool for com-

mon property and development policy issues.

2. For a survey of the early public choice literature on institutions, see

E. Ostrom (1986).

3. For example, the 1997 World Annual Development Report (World Bank

1997) provides a comprehensive discussion of this change. An institutional

approach has also provided the foundation for two recent international policy

workshops sponsored by the World Bank: one on developing sustainable rural

infrastructure (May 1997), and another on community participation in natural

resource management (May 1998).

4. For summaries of the evidence, see E. Ostrom (1998b).

5. We note that providing and producing metered utilities requires a certain

minimum scale, adequate investment capital, and particular sets of institutional

arrangements to be politically and economically viable. It is widely believed that

these conditions are not met in developing countries. However, a growing body of

research and practical experience suggests that participatory institutional arrange-

ments can provide a foundation for coordinating to meet these conditions where

they might not otherwise be met. For experience pertaining to rural infrastruc-

ture, see Gerrard and Polski (1998a). Also see E. Ostrom (1990) on self-governed

AN INSTITUTIONAL FRAMEWORK FOR POLICY ANALYSIS AND DESIGN

common- pool resources, and E. Ostrom, Schroeder, and Wynne (1993) on infra-

structure policies.

6. Thomson and Freudenberger (1997) provide a useful description of key

community attributes, which includes historical factors such as population and

settlement history and conﬂ ict history; social factors such as ethnicity and lan-

guage, family structure, caste and other social divisions; economic factors such as

livelihood strategies and stratiﬁ cation; and cultural beliefs.

7. In addition to stockholders, constituents include customers, suppliers,

employees, other ﬁ rms in the same industry, local, state, and federal government,

and other members of the community who are affected by business actions.

8. Analyzing both compliance and noncompliance helps us to better under-

stand the incentive structure in the action arena.

9. For a review of the CPR literature in the context of the IAD framework,

see E. Ostrom (1996a).

10. Strict rationality implies perfect and complete information as well as the

ability to accurately process this information in a logically consistent way. Weaker

assumptions about information and information processing (bounded rationality)

relax the restrictions of strict rationality.

11. We freely admit that specifying “general morality” is a slippery slope.

Nevertheless, we are encouraged by empirical evidence that suggests that people

in many different types of policy settings relentlessly struggle to develop and

enforce generally acceptable moral standards.

12. Hess (1999) is a searchable and browsable bibliography on CD-ROM

containing more than 22,500 citations on the multidisciplinary study of jointly

owned or managed natural and man-made resources, from forests, ﬁ sheries, and

irrigation systems to urban playgrounds, transportation systems, and the Internet.

The references to this international literature include both theoretical works and

case studies.

References

ACIR (Ronald J. Oakerson). 1987. The Organization of Local Public Econo-

mies. #A109. Washington, DC: Advisory Commission on Intergovernmental

Relations.

ACIR (Ronald J. Oakerson, Roger B. Parks, and Henry A. Bell). 1988. Metropoli-

tan Organization: The St. Louis Case. #M158. Washington, DC: Advisory

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