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Revised: 7/26/2007 <br />choice rules which create barriers to entry (boundary rules) and/or which restrict the rate <br />of use by all entrants (authority rules). <br /> <br />Underinvestment Problems : There is usually an absence of boundary rules which control <br />entry and the payoff rules result in marginal benefits from increased entry, and thus <br />increase resource use which is costless. These rule deficiencies lead to underinvestment <br />and thus under provision of the resource. Remedies for this prob lem is not changing the <br />boundary or payoff rules (options which are often technically infeasible of uneconomical) <br />but rather to adopt new information rules. This produces better information about the <br />magnitude of potential benefits. <br /> <br />Maldistribution and Externality Problems : Solving externality problems generally <br />requires either 1) enacting a partial or full prohibition on the externality causing behavior <br />(regulation), or 2) establishing a system of private rights to the resource (privatization). <br />This e ntails changing the position and authority rules. The distinguishing characteristics <br />of externality problems are an absence of positions rules which recognize the position of <br />externality bearers and the absence of authority rules which require the externa lity <br />generators to consider the effects of their actions upon others. Boundary and payoff rules <br />can also be important. Maldistribution captures a general notion of “inappropriateness”, <br />which can be defined in terms of efficiency or equity. Externalities are almost always <br />situations defined as efficiency problems, but maldistribution incorporates concepts of <br />equity. Both maldistribution and externality problems need institutional reforms that <br />entail modification of position, authority, and/or boundary ru les, actions which <br />collectively address the problematic incentive structure underlying the payoff rules. <br /> <br />Solving Collective Choice Level Problems <br /> <br />The rules at an institution’s collective choice level describe the mechanisms and forums <br />available for chang ing the operational choice level rules, and thus, for solving operational <br />choice level problems. Often, efforts to solve operational choice level problems are <br />impeded by conflict at the collective choice level. <br /> <br />Solving Interest Conflict : Typically, int erest conflicts are addressed through bargaining <br />activities, which can occur in the context of market exchanges, planning processes, <br />legislation, and other related mechanisms. These efforts are most successful if the zero - <br />sum nature of the conflict can be changed to some positive - sum (ideally Pareto optimal) <br />exchange. <br /> <br />Solving Value Conflict : These are notoriously difficult to address since they rarely offer <br />any opportunities for bargaining or compromise. Bargaining away differences is <br />impossible, since the values involved are non - compensatory. Factual information has <br />little impact because conflict is not over facts, but over how those facts are valued. <br />Resolving these disputes can be lengthy and contentious, and often takes a long - term <br />change in preva iling societal values and action at the constitutional choice level. <br /> <br />4 <br />