How do shared governance rules emerge to sustain the exchange and production of knowledge goods? How are those knowledge governance rules – also known as institutional infrastructures (Frischmann et al. Reference Frischmann, Madison and Strandburg2014) – established, enforced, and maintained over time? Understanding these questions at a basic level is useful to identifying contexts where efficient institutions tend to emerge organically, versus other contexts where policy or other interventions may bring improvements. If the establishment of governance structure is an exercise in drawing boundary lines and rules, then we might expect a complex society to have an innumerable mix of formal processes such as legislation, bylaws, and contracts, along with informal processes such as norms, customs, and culture. Many in the literature argue that rules in use are emergent, which means that the rules of interaction are the result and outcome of the interaction itself. This particular claim would benefit from further substantiation, further support within the framework of institutional analysis. Here I focus on the general process of establishing these informal and formal rules of knowledge governance, and I argue that, to some extent, coproduction of knowledge governance is endogenous to economizing behavior because in exchanging knowledge goods people also exchange knowledge, and in exchanging knowledge they contribute to the collective processes of forming shared understandings that are the building block of constructing institutions. To approach these questions, this chapter uses a simple scalar approach to specify the degree of knowledge content in economic goods, and it adapts the Institutional Analysis and Development (IAD) framework to define community along non-geographic boundaries. Next we introduce individual sovereignty as a concept of power relations within non-geographic communities. The main contribution of the chapter is to utilize the IAD to identify contexts where collective action of community members is likely to perform well in the coproduction of knowledge governance. Namely, in contexts where individual sovereignty is high, and where the degree of knowledge content is high, members of the community contribute to the coproduction of knowledge governance as a by-product of their ordinary economic activity. A second contribution of the chapter is to show where four large areas of literature connect to form a basis for further study of knowledge commons. In this aspect, the chapter does not forge new territory but instead draws attention to some of the intellectual foundations and deep lines of thought that gird emerging scholarship on governing knowledge commons.

The IAD framework (E. Ostrom Reference Ostrom1990, Reference Ostrom2005, Reference Ostrom2010) has been employed to study knowledge commons. The general editors of Cambridge Studies on Governing Knowledge Commons describe recent strands of research on a broad range of knowledge commons including scientific data commons, intellectual property pools, open-source software, wikis, internet protocols, newswire services, medieval guilds, and more. They set forth a research agenda to adapt the IAD framework from its original emphasis on physical goods to the newer emphasis on knowledge goods.

In other words, this research agenda seeks to develop systematic understanding of communal governance across all kinds of knowledge goods. How do communal institutional arrangements (which are mostly informal) emerge, how are they defined (access and use rights), how do they function (enforcement mechanisms), how long do they last (status quo survival), and under what conditions do they fail (institutional change)? These are the central questions in advancing IAD to knowledge governance. In this chapter, I contribute to this literature by identifying contexts where human action within market rules itself contributes to the implementation, maintenance, and evolution of those same rules. I combine elements of IAD to provide a way to define a notion of community that draws on social and economic boundaries, contra the usual geographic and political boundaries familiar to physical commons. Central to the contribution are the concepts of knowledge governance, individual sovereignty, community, shared understanding, and, following John Searle, the interaction between constitutive and regulative rules. The general point of the chapter is a comparative static between knowledge content and governance. Drawing on Searle’s ontology of institutions and Ostrom’s IAD framework, people’s everyday expressions of information and sharing of knowledge contribute to the establishment of institutions. By exchanging knowledge goods people are exchanging ideas, and this very exchange of ideas can be sufficient to supply knowledge governance. The main implication for the literature is that entrepreneurial action in knowledge goods space is at once economic entrepreneurship, in the sense of producing and exchanging knowledge goods, while simultaneously it is also institutional entrepreneurship, in the sense of contributing to the establishment and maintenance of the knowledge governance institutional structure. As a corollary, supposing physical and knowledge goods are not binary categories (instead we can situate all goods on a continuum of knowledge content), then the greater the knowledge content in goods exchanged, the closer economic and institutional entrepreneurship approach simultaneous functions of the same human action. In the limit, when economic goods are purely constituted by knowledge content, the act of exchanging goods is sufficient for the coproduction of knowledge governance.

Section 3.1 lays the foundation for the rest of the chapter by making three analytic distinctions: (1) between physical and knowledge goods; (2) between knowledge goods and knowledge governance; and (3) between commons that involves a lack of ownership versus communal or shared ownership. Here we draw heavily from the traditional law and economics literature, which predominantly focuses on the degree of rivalry when formulating policy implications. By focusing instead on the degree of knowledge content in economic goods, we more clearly delineate where inefficiencies might arise. It matters, for example, whether policy correction targets the point of individual production of knowledge goods or the point of collective production of knowledge governance. Section 3.2 migrates the discussion to political theory and the concept of sovereignty. Sovereignty is the fundamental concept used to analyze distributions of power within a territory. It specifically references supreme authority; or, as we will see, it determines who in a territory is “the one who decides on the exception” (Schmitt Reference Schmitt1934 [2005]). Sovereignty is distinct from rights, obligations, or duties. A sovereign might have the authority to use coercive force while simultaneously holding a duty not to use it. Venturing in this way into political theory is risky for at least a couple of reasons. First of all, the literature on sovereignty is vast and deep, so I will necessarily have to gloss over important subtleties and areas of fundamental disagreement among scholars.Footnote ¹ That literature is also contentious and controversial on important issues that are not our focus. And finally, there may arise the question of fit. How does political authority find its way into analyses of knowledge governance? The answer, for purposes of this chapter, is that I use a stylized concept of sovereignty. Most of Section 3.2 is devoted to the particular notion of individual sovereignty, which I attribute to Vincent Ostrom (Reference Ostrom2006) and James Buchanan (Reference Buchanan1996), and which parallels the analysis of power relations both in Elinor Ostrom’s IAD framework (E. Ostrom Reference Ostrom2005) and in John Searle’s ontology of society (Reference Searle1995). Common to all four of these major scholars is the similar theme that institutions not only shape and make possible human interactions by regulating behavior but also are everywhere a product of collective action. Governance is both produced by individuals in a community and consumed by those same members as a common pool resource. People draw benefits from the relative certainty provided by shared understandings and agreed-upon rules. All members of a community are free to avail themselves of the rules of engagement to structure their associations, form their bonds, make their investments, and engage in quotidian exchanges of sentiments and goods. Governance is both public enterprise dependent on individual contributions-in, and a common pool resources sustaining their extractions-out. This differentiates knowledge governance from more frequently studied natural resource common pools. This focus is similar to Kealey and Ricketts (2014; Chapter 1), who model science as a contribution good, and to Won and Klamer (Chapter 11), who describe shared governance among creative communities within large cities. To generalize, markets can extend beyond spot-trading opportunities only because of the institutions of contract, money, and property. These underlying economic institutions, once constituted, are available for all buyers and sellers to use. In short, the rules themselves, once having been coproduced within a community, then become a shared resource that members of a community utilize to structure their interactions. Communities therefore face a persistent collective action problem, namely, how to continually generate contributions to coproduce the common pool of knowledge governance and to maintain it over time such that the depletion rate of governance does not systematically exceed the replacement rate of governance. Governance is both public enterprise dependent on individual contributions-in and shared resources sustaining their extractions-out.

Sections 3.3 and 3.4 show how institutions are coproduced through systematic processes of idea exchange. Elements of the IAD are used to define community along non-geographic margins of people’s social and economic connections. Institutions are fundamentally cognitive and communicative. Some early papers in the development of the IAD help us to see how Elinor Ostrom prioritized the cognitive origin of institutions and the centrality of language and communication to the coproduction of rules. She taught her students and readers to search for data in the language that people use, the expressions they make, and the ideas they trade. Much of this interleaves with, if not anticipates, the same cognitive and communicative foundation of Searle’s ontology of institutions. I show these foundational connections between Ostrom and Searle, and use them to emphasize the interaction between constitutive rules, which social scientists tend to neglect, and regulative rules. In contexts of high individual sovereignty and high knowledge content of traded goods, once the constitutive rules are established, they imply and actually feature the regulative rules as well. Finally, in the concluding section I apply this framework of coproduction to communities that exchange goods of high knowledge content. I draw on some empirical results from the literature on intellectual property among magicians.

3.1 Knowledge Goods, Knowledge Governance, and Exchange Acts as Speech Acts

In this section I distinguish knowledge goods from physical goods, placing the degree of an economic good’s knowledge content on a continuum. I also distinguish knowledge goods from knowledge governance, treating knowledge governance as a coproduced collective good. And third, I distinguish communal ownership from commons. As I will argue, once we incorporate the degree of knowledge content in a good, then the degree of non-rivalry becomes irrelevant to questions of coproducing knowledge governance.

First let us classify economic goods into two distinct categories, physical goods and knowledge goods. A knowledge good derives its economic value from the configuration of ideas that are embodied in it. Knowledge goods do have some form of physical, tangible manifestation (ink on paper, or digital bytes, for example), which serves the function as medium for conveying the good. However, a knowledge good’s economic value derives first from the configuration of ideas embodied in it, and secondarily from its physical manifestation. A theorem, a short story, and a radio signal are examples of knowledge goods. More generally, knowledge goods include information, science, creative works, data, and so on.

Many economics and legal scholars have argued that knowledge goods are non-rival by nature. Some argue that non-rivalry presents a market failure, in the sense that a policy intervention would be necessary to optimize producer incentives, otherwise knowledge goods fall under risk of over-depletion or under-provision relative to a social welfare standard. At issue is a disclosure problem associated with the supply of knowledge goods. Once an entrepreneur brings a knowledge good into circulation, the ideas behind its design and operation can be detected, and copied, by other entrepreneurs. In the case of celebrity image, for example, the sustainability of a celebrity’s economic value to fans could be depleted through overexposure in media play, especially advertising. Disney notoriously manages the image exposure of its cartoon characters, and has vigorously pursued copyright expansion and enforcement. Likewise, entertainers including Bette Midler and Humphrey Bogart have prevailed in what is now a mature body of right-of-publicity cases. Trademark law, more broadly, recognizes the depletable nature of knowledge goods through its explicit rationale of avoiding brand dilution (Landes and Posner Reference Landes and Posner2002). In general, due to the disclosure problem, many knowledge goods are non-rival, at least up to a congestion point. This non-rivalry translates into an incentive alignment problem. On the margin, a single copy of Adam Smith’s Wealth of Nations might be of negligible marginal value, easily replaced with the next copy. Once Smith releases the particular configuration of words that constitute his brilliant work, that configuration and therefore the recipe for reproducing it becomes known to all. Similarly, a garment design embodies the ideas of the fashion designer. Once presented on the runway, the garment conveys the designer’s ideas to all observers. Other fashion designers can therefore imitate or tweak those ideas by observing the garment (Cheney Bros. v. Doris Silk 35 F2d 279 1929; Raustiala and Sprigman Reference Raustiala and Sprigman2006). Likewise, once a chef serves a dish, or once a magician performs an illusion, the ideas behind the good’s appeal can be detected and imitated by others (Loshin Reference Loshin and Christine A.2008; Cunningham Reference Cunningham2009). Similar dynamics unfold with craft goods, which can blur the lines between physical and knowledge goods. In their chapter, for example, Vachris and Vachris (Chapter 8) show how purveyors of fine Scotch whiskeys historically designated and over time maintained “single malt” standards of quality and production process, to distinguish from cheaper (“blended”) and non-Scottish (“foreign”) imitators. To negotiate the disclosure problem, these early single malt entrepreneurs took advantage of the fact that fine whiskeys take years to age, giving them a decade-plus first-mover advantage over would-be copyists. Similarly, the global scientific community has historically used attribution rules, such as naming of theorems or celestial bodies, to guard against the disclosure problem (Kealey and Ricketts 2014; Chapter 1). In these and other examples of supplying knowledge goods, the disclosure problem creates at least in principle an adverse incentive structure for achieving the socially optimal mix of knowledge goods produced. Under an expectation of being copied, a producer expects high fixed costs and insufficient marginal revenue to be profitable. Therefore, Adam Smith would have insufficient incentive to write The Wealth of Nations, fashion designer Yves Saint Laurent would not bother to pioneer the 1950s “New Look,” and chef Roy Choi would not have innovated the Korean Taco. By this non-rivalry and disclosure-problem argument, an exclusive right to sell (e.g., a copyright) would ameliorate this disincentive.

Meanwhile, others have used non-rivalry in knowledge goods to argue the opposite policy prescription; namely that despite non-rivalry, market strategies and informal norms such as attribution can provide adequate producer incentives without a policy intervention. In performance magic, for example, Loshin (Reference Loshin and Christine A.2008) argues that magicians need more nuanced rules than formal intellectual property law is capable of providing, so they rely instead on explicit norms for group admission and within-group interaction. A magician’s claim to original ownership, for example, is established by performing the illusion publicly. Once ownership is established, enforcement norms are used to punish violators, initially with small and subtle social cues, but eventually by escalating to banishment if necessary.

A physical good, by contrast, derives its economic value from the configuration of materials that are embodied in it. Physical goods do have some forms of knowledge embodied in them (material science, basic design, production processes, etc.). However, a physical good’s economic value derives first from its configuration of materials and second from its ideas. A deck of playing cards, a stack of lumber, and a radio receiver/player are examples of physical goods. More generally physical goods include real property (land, buildings), tangible property (vehicles, equipment), personal property (clothing, food), and so on.

Land use contexts also reveal that communities often utilize non-state/non-market governance structures. For example, in California’s Shasta County, cattle ranchers establish and enforce boundary rules internally (Ellickson Reference Ellickson1994). Similarly, groups of people have often established communal rights to govern shared access to fugitive resources, such as fisheries, elephants, underground water basins, and other resources that naturally migrate across the surface estate boundaries of real property (E. Ostrom Reference Ostrom1990). Friedman (Reference Friedman2000) describes the practice known as unitization, whereby individual property owners collectively govern shared access to subterranean oil reserves that flow across their surface estate boundaries. These and many more examples are better suited to communal rather than private property.

Now here is a puzzle. Even though physical goods are rival in use, they still carry a form of the disclosure problem, and this in turn carries social welfare and policy implications similar to those attributed to non-rivalry. Take real property, for example. Land is quintessentially physical and rival in use. However, a very large and mostly game-theoretic literature has accumulated around the disclosure problem in land assembly projects. The essential problem is, once information is disclosed that a developer is assembling parcels in an area, sellers in that area can strategically holdout and holdup to capture surplus. This causes delay and threatens otherwise efficient assemblies, thus creating social losses. Under the paradigm that distinguishes only two sets of policies, market or state, this problem leads to recommendations of eminent domain as corrective policy. By attenuating sellers’ rights of alienation, eminent domain removes the option of holdout and thus restores social welfare (Miceli Reference Miceli2014). Notice that the disclosure problem rests a key feature of exchange, regardless whether it occurs in contexts of pure knowledge goods or pure physical goods: the very act of economic exchange itself conveys information. By the action of supplying the good, or assembling the parcel, economic entrepreneurs are communicating and receiving ideas. The argument in this chapter is that the exchange of ideas that is inherent to acts of economic exchange in turn shapes institutional arrangements. Ideas shape institutions, both in pure knowledge goods and in pure physical goods. Many land developers, for example, have eschewed eminent domain and instead have confronted potential holdouts with counterstrategies. These counterstrategies have included contingent contracts, strategic secrecy, holding companies, and more (Benson Reference Benson2005). When developers seek market strategies, eschewing policy intervention, the role of the state is to recognize and enforce contracts. But when developers instead seek transfer of property through eminent domain, the state becomes an active participant in economic exchanges. These are very contrasting institutional settings, so this illustrates how economic action entails the exchange of ideas and as such it directly influences institutions.

Rather than the degree of rivalry or the disclosure problem and their implications for institutional arrangements, I focus instead on the implications of the degree of knowledge content in economic goods. To that end, let us next classify knowledge goods and physical goods not as separate categories but along a continuum. The economic value of a good in terms of its marginal revenue to the seller can be stated as ${\mathit{MR}}_q=k\left(\mathit{QP}\right)$, where P is the unit price, and the scalar $\left(0<k<1\right)$ measures the degree of knowledge content embodied in unit q of economic good Q. Using the scalar k, we can place economic goods along a continuum that measures the intensity of knowledge content.

Figure 3.1 can be used to describe familiar aspects of economies. For example, the process of economic growth transitions an economy from a simple capital–labor mix, where k approaches zero, through its agricultural and then industrial development all the way to a modern “knowledge economy” where k approaches 1. We can also delineate the intensity of knowledge content within classes of goods. For example, we could construct a knowledge content continuum for food goods, and we would say that molecular gastronomy has a relatively high k while the k for home cooking is low. Similarly, high fashion embodies greater design content than commercial clothing does (Raustiala and Sprigman Reference Raustiala and Sprigman2006). We can describe a range of knowledge content similarly for the engineering sophistication of cars, smart features in homes, and literary subtlety in television.

Figure 3.1. Intensity of knowledge content in economic goods

Different economic models become useful as we move to the right along the continuum. In cases of physical goods such as crops and lumber, a model of competitive equilibrium can organize much of the dynamics of the market. But as we move to the right, traditional models do not so readily apply. For example, as economic growth leads to greater k across much of the economy, then we begin to require models that feature endogenous growth or generalized increasing returns. Similarly, at the micro level, as innovative technologies create new markets with greater k than had been experienced before, traditional structure–conduct–performance models perform poorly. In the browser wars of the late 1990s (United States v. Microsoft Corporation 980 F.Supp 537), for example, the charge of monopolization was levied at an alleged monopolist for charging a price of zero. Alternative models built on network effects, and emergent competition and non-price competition began to make better account of the new, information-driven, knowledge economy. As greater knowledge content has prompted alternative models of markets, it has led to alternative models of governance as well. Focusing on the degree of knowledge content, rather than the degree of rivalry, enables us to focus on the coproduction process of knowledge governance.

The term knowledge governance refers to the formal and informal institutional arrangements that structure the production and exchange of knowledge goods. Discussions of knowledge governance are sometimes obscured by the term knowledge commons, which is ambiguous in use because it sometimes means the absence of any governance structure, but in other usages it means a governance structure is present yet it allows open access. Consider how Cole and Grossman (Reference Cole and Grossman2005) summarize this ambiguity in their textbook, Principles of Law and Economics:

Notice that their discussion can be applied to goods along the range of k, from physical to knowledge, and that they trace the ambiguity of the term commons to an implicit binary assumption of institutional alternatives – either state regulation or free market (see Frischmann, Marciano and Ramello Reference Frischmann, Marciano and Ramello2019 for further discussion of commons). But, of course, other alternatives include communal governance, absence of governance, and mixed or alternating regimes. Therefore, Cole and Grossman (Reference Cole and Grossman2005: 94–96) continue by referencing four ancient Roman categories for property. First, Res privatae is private property. For example, a majority of land in the United States is held by private individuals or small groups of co-owners. In contexts of knowledge goods, Res privatae can be seen in the form of proprietary logo designs and branding slogans under the auspices of intellectual property law such as trademark. Res private is what economists typically mean when discussing private property rights. By contrast, Res publicae is the joint ownership by all in society as represented by the state. Over 40 percent of land in the United States is held by government entities at the local, state, or federal level. Prior to the use of spectrum license auctions in the mid-1990s, Congress controlled bandwidth under a public ownership regime, but following Coase (Reference Coase1959), spectrum was then partially privatized through auctions (Hazlett Reference Hazlett2017). Third, Res nullis means the absence of exclusion rules such that no one in the society has property rights; therefore, all members of the public have open access. In Europe and North America, for example, modern-day governments have designated traditional rights of way and certain lakes and rivers as open access, available to the general public as shared common heritage. Res nullis can also be found in US copyright law, which continues to reserve for the public domain certain standard elements and gifts of nature, thus denying creative expressionists the exclusive rights to knowledge goods that are “the common heritage of humankind.”Footnote ² Whether in real property or knowledge goods space, notice that both Res publicae and Res nullis define the general public as the principal and the state as agent. The distinction is not whether the state is involved, or whether the governance structure is designed to benefit the public, but instead whether a rule of exclusion exists. And fourth, Res communes refers specifically to collective ownership and sharing of access and exclusion rights. A typical example in real property is the neighborhood swimming pool or the homeowners’ association (Buchanan Reference Buchanan1965). In the vein of Elinor Ostrom’s work (e.g., E. Ostrom Reference Ostrom1990), many examples of communal ownership have become well known in fisheries, water, and public enterprises. In knowledge space, many examples of open-source code fall into Res communes, and communal rights have also been formalized into nonstate institutional arrangements such as Creative Commons licensing (Lessig Reference Lessig2003).

In this chapter, I am primarily focused on Res communes. In particular, I seek to identify important implications of treating knowledge governance (the institutional structure supporting the production and exchange of knowledge goods) as itself a coproduction process of collective action under shared meta-rules of communal ownership. In this vein, I follow Frischmann (Reference Frischmann2012) in organizing governance as a social structure, and Aligica et al. (Reference Aligica, Boettke and Tarko2019) in differentiating between joint production and coproduction, both working within the IAD framework. In my treatment, the structure of knowledge governance is itself a collective consumption good, whose production requires some coordination and organization of individual human action into useful collective action. In other words, this chapter simply asks: what determines the process of coproduction of knowledge governance? As we will see in Sections 3.3 and 3.4, shared understandings are the building blocks of social institutions, and communication of speech acts is how people form shared understandings. Therefore, Section 3.2 next describes the importance of individual sovereignty to loosening constraints on speech acts.

3.2 Individual Sovereignty, Speech Acts, and Territoriality

Sovereignty is a fundamental concept in political theory that refers to assignment of political authority. At its most general level, sovereignty is defined as “supreme authority within a territory” (Philpott Reference Philpott2016). The assignment of political authority amounts to “who sets the rules.” For example, following Schmitt (Reference Schmitt1934 [2005]), the “sovereign is he who decides on the exceptions.” The sovereign’s authority can be absolute, in the sense that it spans the entire range of human affairs within a territory, or it can be non-absolute, whereby the sovereign is still the supreme authority but within a more narrowly defined scope of activity. For example, a sovereign might have supreme authority over matters of trade and state, but that authority might not extend to matters of family or religion.

Historically, by assigning authority, sovereignty implied responsibility. As a responsibility, it was not equivalent to a right, or a license, or a duty. For example, medieval sovereigns had rights that far surpassed those of subjects, but sovereigns were still bound by justice in their treatment and protection of subjects (de Jouvenel Reference de Jouvenel1957 [1997]). To this point, de Jouvenel emphasizes the “fortunate powerlessness of kings” that prevailed during the medieval periods of the absolute monarch. There we find that kings did enjoy more political rights than subjects did; however, the sovereign could not violate those relatively few rights that subjects did enjoy while still claiming to be just. Furthermore, kings were not all powerful but instead entered contractually into arrangements with subjects to exchange resources for rights protection. Therefore, while kings held supreme authority on most matters, on contracted matters they instead held duties to not infringe. With the gradual decline of kings and the Church, culminating in 1648s Treaty of Westphalia, sovereignty shifts from the crown to what would become the universally dominant form of political organization, the state. Then, with the period of Enlightenment philosophy and American constitutionalism, sovereignty shifts still further, this time from the state toward the individual, who transforms during this process from subject to citizen (de Tocqueville Reference de Tocqueville and Bradley1835). Then, with the late nineteenth- and early-twentieth-century rise of totalitarianism, sovereignty shifts from individuals to the nation-state. Finally, since about mid-twentieth century, the sovereignty tension has located between nation-states and international federations – a set of battles that plays itself out today in the United Kingdom, Catalonia, Hong Kong, Quebec, and between Washington and the 50 states. Territoriality is usually understood in the geographic sense, which in turn defines the community to which individuals belong. “Territoriality is a principle by which members of a community are to be defined. It specifies that their membership derives from their residence within borders …. It is rather by simple virtue of their location within geographic borders that people belong to a state and fall under the authority of its ruler” (Philpott Reference Philpott2016: 3–4).

The particular notion of sovereignty used in this chapter is based on James Buchanan’s concept of individual sovereignty (Buchanan Reference Buchanan1996) and Vincent Ostrom’s citizen-sovereign (V. Ostrom Reference Ostrom2006), both of which fall in the line of Enlightenment philosophy and liberal constitutionalism. The main differences I add here are twofold. First, I place a more explicit emphasis on territoriality than either Buchanan or Ostrom do, and second I define territory to include cultural, economic, and other social boundaries as well as the geographic and political boundaries that are the traditional emphasis in studies of sovereignty.

In their treatments of sovereignty, Buchanan and Ostrom both fall into a line of liberal thinkers on the topic that includes Bertrand de Jouvenel, Alexis de Tocqueville, James Madison, Adam Smith, and more. For Buchanan, the hallmark of individual sovereignty is the protection of inalienable rights against tyranny sourced in the coercive power of the state. Philpott (Reference Philpott2016) distinguishes between the mere wielding of coercive power as compared to the right to use it. Buchanan self-identifies as a philosophical anarchist, by which he means there should be a presumption of liberty, and any infringement requires solid justification. In The Limits of Liberty: Between Anarchy and Leviathan (Buchanan Reference Buchanan1975), he attempts to delineate the scope of human affairs within which the state has legitimate authority to use coercive force. For example, in a key chapter he treats the law as a public good, directly anticipating theories of social capital. In one subset of human interaction, people’s activity contributes to the upholding of the law, and to the law’s beneficial reform in the direction of liberal constitutionalism. However, in the remainder of human action, people free-ride on others’ contributions to the collective production of law. The scope of the latter category forms the basis for the scope of legitimate state authority – to solve the free-rider problem in the collective production of law. However, outside that scope, where no compelling reason can be identified for state infringement on private affairs, the individual is sovereign (Buchanan Reference Buchanan1996). In particular, Buchanan prioritizes economic rights and the off-limits status of economic activity.

In other words, the state’s legitimate role is to support and sustain economic activity by enforcing open access to economic activity. In an explicit Tiebout-competition framework, Buchanan concludes that competitive federalism, by its virtue of providing each citizen with the power of exit as an enforcement mechanism, also provides the optimal protections against infringement of individual sovereignty. Vincent Ostrom, in his 2005 John Gaus Lecture, similarly emphasizes the individual citizen’s sovereignty, and its implications for the individual’s civic responsibilities.

In Ostrom’s approach voice rather than exit is the key mechanism. In his Tocquevillian approach, the very processes of social interaction that constitute civil society are processes of communication. People tell stories, learn from each other, and study together, while they simultaneously seek shared understandings and opportunities for mutual betterment. Both James Buchanan and Vincent Ostrom treat human interaction as collective action processes that constitute rules of interaction, and regulate decisions of state and private individuals. Exit and voice are expressions of individual sovereignty, and individuals use them to limit the scope and reach of state infringement. Where exit and voice are curtailed or attenuated, human action threatens to become misaligned with beneficial progress.Footnote ³ As applied to knowledge goods, this same line of reasoning reflects the feature that economic action necessarily communicates information. Exchange acts are speech acts, and the general process of exchanging ideas contributes to the collective production of knowledge governance. The following two sections fuse Elinor Ostrom’s IAD and John Searle’s ontology of institutions to reflect this same collective action implication: economic interaction is exchange of speech acts, and speech acts create the shared understandings used to collectively define institutions.

3.3 Non-geographic Communities, Power Relations, and the Cognitive and Communicative Foundations of Rules: Combining Elements of the IAD Framework

Neither Buchanan nor Ostrom stresses territoriality in their treatments of sovereignty, although geographic area is clearly implicit. This gap can be addressed using elements of the IAD framework, which is designed as a generalized set of nested building blocks that can be modified to study a broad range of social contexts. The IAD framework situates individuals in a dynamic action arena, where participant interactions are linked to potential outcomes and feedback loops. The IAD accommodates models of individuals that go beyond optimizing within constraints. Individuals are assumed to be adaptive, learning, and imperfect agents pursuing usually multiple and often conflicting objectives. Of central importance are the rules of interaction, both “rules in form” and “rules in use.” Detailed treatments of the IAD framework originate in E. Ostrom (Reference Ostrom1990, Reference Ostrom2005, Reference Ostrom2010), and applications to knowledge commons can be found in Frischmann et al. (Reference Frischmann, Madison and Strandburg2014) as well as in the introduction to this volume. Here I will utilize three key aspects of the IAD framework. First, the framework’s boundary rules provide a mechanism to define community, and this notion of community can in turn define non-geographic territory of individual sovereignty. Second, some of Elinor Ostrom’s early papers on the elements of institutions emphasize power structure within a situation, and the implied relative freedoms of expression. This early work thus anticipates the concept of individual sovereignty as developed in Section 3.2. Third, as with Vincent Ostrom’s emphasis on voice above, Elinor Ostrom characterizes rules of interaction as being formed through communication, thus anticipating the argument that exchange of speech acts is a mode of collective action that contributes to the production of governance. This can be seen, for example, in her work on the evolution of social norms (E. Ostrom Reference Ostrom1999). This section, therefore, joins the work that applies the IAD framework not only to physical goods such as fisheries, or to services such as water or security, but also to knowledge goods and to the institutions of knowledge governance that support them (Hess and Ostrom Reference Hess and Ostrom2007).

Communities are groups of individuals interacting under the same shared understandings about the rules in form and rules in use that govern their situation. Within the IAD framework, communities begin with collectively agreed upon boundary rules. A community’s boundary rules govern membership; they determine the individual attributes needed for entry, and they set conditions for entry to and exit from membership (E. Ostrom Reference Ostrom2005: 194 ff.). Persons who satisfy the boundary rules are welcome to interact on this side of the boundary, within the community, while those who do not must remain out. Boundary rules may reference geographic space, as with land assembly problems or fugitive resources that we discussed in Section 3.1. Boundary rules may also delineate areas along non-geographic margins, where people on any given occasion might interact each as members of numerous overlapping communities at once. Once inside the boundary, whether defined along geographic lines or not, a nexus of within-group rules governs individuals’ interactions with others in the community. These rules determine an individual’s stature within the community (position rules), their potential impact on others in the community (scope rules), what authority supports or restricts her actions within the community (authority rules), what knowledge they contribute to and withdraw from the community (information rules), how much weight their decisions carry (aggregation rules), and the costs and benefits to them and others of their actions (payoff rules). These within-group rules also govern members’ interactions with non-members. Among these rules are those that determine the degree of control, opportunity, and therefore power held by each individual. With these latter rules, we can use the IAD framework to identify variables that determine the scope of individual sovereignty within a community.

The concept of sovereignty can be recognized in the IAD framework by focusing on Elinor Ostrom’s treatment of power in her early working papers on the IAD (E. Ostrom Reference Ostrom1983, Reference Ostrom1985).Footnote ⁴ As discussed above, sovereignty can be understood in traditional geographic contexts as a right to use coercive force, which might be limited or unlimited in scale and scope depending on the rules of engagement. Ostrom isolates the particular rules that are relevant for sovereignty in communities with geographically or socially defined boundaries, namely those that shape an agent’s opportunity and control within a situation.

We can see that her discussion of power mirrors the discussion of sovereignty from above. Sovereignty can be supreme yet non-absolute, as power can similarly extend over a range of opportunities yet still depend on one’s degree of control. Furthermore, her focus on the distribution of power among individuals in a situation mirrors Buchanan’s and Vincent Ostrom’s focus on individual sovereignty from above. A highly centralized political order is prone to attenuate individuals’ opportunities for exit and voice, thus concentrating the political situation’s distribution of power. In the IAD, the rules in form and rules in use of any situation will determine the distribution of power in that situation. This naturally raises the question how the rules in form and rules in use take their shape.

Cognition and communication are fundamental to the third feature of IAD used here. The use of language to exchange ideas sustains the process of individuals coming to shared understandings with others. The exchange of ideas is fundamental, therefore, as “all participants must share some information about the situation before an analyst can even state that the participants are in an action situation” (E. Ostrom Reference Ostrom1985: 5). This theme of sharing information, of communicating among others, is therefore antecedent in the IAD framework to people subsequently forming shared understandings. Through repeated interaction within a community, there is a give and take, a back and forth, a dynamic game of knowledge sharing. This leads people in a community to develop ways of doing things. They adapt toward certain behavioral norms with each other, and they adopt certain institutional rules of membership and within-group interaction. All of this is accomplished through the exchange of knowledge and ideas toward the development of shared understandings.

The main overall application to knowledge goods and knowledge governance that we draw from combining these three elements of the IAD is that rules are cognitive and communicative in nature. Institutions do not form without individuals thinking and talking together to form shared understandings. Elinor Ostrom instructed users of the IAD to study people’s discourse, “to discover the linguistic statements that form the institutional basis for shared expectations that influence observed regularities in behavior… Is there an articulated sense of moral or social obligation expressed?” (Crawford and Ostrom Reference Crawford and Ostrom1995: 586). As we will see, these early papers anticipate much of the same emphasis on language and shared understandings in John Searle’ ontology of institutions. By delving next into Searle’s framework, we better see that institutional rules, once constituted through cognition and communication, also regulate behavior. Searle’s framework provides a clear and general notation for making these connections and applying them to questions of knowledge goods governance.

3.4 Constitutive and Regulative Rules as Coproductive Collective Action: Incorporating Searle’s Social Ontology

Social scientists tend to emphasize institutions as regulative rules – those rules that constrain actions in antecedently existent arenas. In economic exchange, for example, the formalization of rights, duties, and responsibilities through property and contract law came long after people had been pursuing their natural tendencies to truck, barter, and exchange. Similarly, legislation governing organ transplants, genetic modification, ride sharing, and autonomous cars were passed only once these technologies took on actual practice in society. In other contexts, however, people’s actions did not precede the establishment of rules, but instead were made possible only by the establishment of new rules. Many board games such as chess fit this description. Searle (Reference Searle1995: 27) describes: “It is not the case that there were a lot of people pushing bits of wood around on boards, and in order to prevent them from bumping into each other all the time and creating traffic jams, we had to regulate the activity.” Rules that create new action arenas are constitutive rules. Once the rules of chess constitute the play of chess, the same rules now regulate the play of chess. In this sense, constitutive rules always imply regulative rules.

Like the IAD, Searle’s framework provides highly generalized building blocks for analysis of institutions in diverse contexts. In Searlean terms, institutions are constituted by collective assignment of status functions to social phenomena. People use language to tell stories, exchange observations, and share “beliefs, hopes, desires, emotions, perceptions, and lots of others” (Searle Reference Searle2006: 56) to express collective intentionality about the purpose of a situation, and to assign function to the elements of an action situation. This collective assignment of function enables people to constitute rules that coordinate individuals’ actions, both in cooperative and conflictual situations, based on shared understandings of the rules that govern the situation. The collective assignment of status functions is a necessary condition for people to interact on recognized terms, especially in non-physical situations amenable to knowledge goods analysis, where

In all situations, institutional rules and systems of rules follow the form: X counts as Y in context C. The term X is a phenomenon of the physical or social world. It can be an object, an idea, an action, a proposition, or almost any phenomenon that could possibly be considered. The term Y is a status function that represents the status of X as an institutional rule. The phrase “counts as” lies at the heart of institutional formation. This process is what Elinor Ostrom describes as cognitive and necessarily communicative in nature. This is one of many direct parallels between Elinor Ostrom’s development of the IAD and Searle’s development of the ontology of society. We also see here direct parallels to Vincent Ostrom’s emphasis on voice and social interaction that we covered in Section 3.2. In Searle’s treatment, people in the community engage in speech acts, and in the process come to shared understandings about the status of diverse phenomena in their physical and social contexts. People express shared understandings as collective recognition, collective acceptance, and collective acknowledgment of all phenomena in the nexus of X, all toward the eventual collective assignment of status to any phenomenon ${\mathrm{X}}_{i,t}$ in context ${\mathrm{C}}_t$ that it serves function ${\mathrm{Y}}_{i,t}$. This process of establishing an institution is cognitive and communicative in nature, as it comes when people use ideas and language to collectively develop shared understandings about various physical and social facts of the world. Through continued exchange of ideas in repeated interaction, people come to collectively assign functions to those physical and social phenomena. As Searle (Reference Searle1995: 40) sums up, “This is the beginning point of all institutional forms of human culture, and it must always have the structure X counts as Y in C.”

Consider Searle’s structure applied to the boundary and within-group rules of a community that trades in a high knowledge context and features high individual sovereignty. For example, suppose there is an ${\mathrm{X}}_{\mathrm{a}}$ that can be expressed as “a member of the magician community has publicly performed but has not published a novel illusion.” According to the collectively coproduced rules constituted in context ${\mathrm{C}}_t$, “period t in the community where people produce and exchange magic tricks,” ${\mathrm{X}}_{\mathrm{a}}$ counts as ${\mathrm{Y}}_{\mathrm{a}}$, “this magician owns this illusion.” As Loshin (Reference Loshin and Christine A.2008: 31) reports, “Performance of a trick without publishing it is a magician’s strongest signal to the magic community that she intends to keep it for herself.” Such a rule is how magicians collectively agree on how to solve the disclosure problem discussed in Section 3.1 and thereby constitute rules to coordinate their behavior toward mutual gain. Now suppose a different ${\mathrm{X}}_{\mathrm{b}}$ could be expressed as, “a member of the magician community has disclosed communally owned magic secrets to non-magicians.” Magicians consider this to be a serious offense and therefore this would count as ${\mathrm{Y}}_{\mathrm{b}}$, “economic value has been permanently lost from magician’s common pool of secrets” in the context C “the magician community.” Notice that articulating either phenomena ${\mathrm{X}}_{\mathrm{a}}$ or ${\mathrm{X}}_{\mathrm{b}}$ involves an implicit assumption that a boundary rule has been constituted, and that it has determined prior to the emergence of phenomena ${\mathrm{X}}_{\mathrm{a}}$ or ${\mathrm{X}}_{\mathrm{b}}$ who is and who is not a member of the magician community. In short, we can easily see that boundary rules to determine community membership, and within-group rules to regulate member interactions, are as much contained in Searle’s ontology as they are in Ostrom’s IAD.

Notice also that once established, these constitutive rules also regulate the play of the game. In other words, constitutive rules imply regulative rules. It is striking how easily Searle’s framework can be adapted to define and specify many combinations of the elements of an IAD action situation as we have just seen. These include boundary rules that determine membership in a community and within-group rules that regulate interaction among community members. Searle’s framework also affords clear distinction between constitutive and regulative rules. Both E. Ostrom and Searle provide that constitutive rules are sourced ultimately in cognitive and communicative processes. Both use similar deontic powers arguments as their general mechanisms that connect the establishment of constitutive rules with the necessarily implied regulative rules that follow. Both also take the further next step in connecting deontic powers with the distribution of power in a community. “The answer is that the status functions are the vehicles of power in society … What we have in society is a set of deontic power relations” (Searle Reference Searle2006: 59). Crawford and Ostrom (Reference Crawford and Ostrom1995: 585) argue in parallel, “the meaning of the deontics obliged (must) and forbidden (must not) fit well into most conceptions of normative statements… In many instances, assigning a may to an action is the equivalent of ‘constituting’ that action (Searle 1969).”Footnote ⁵ The interaction between constitutive and regulative rules can be easily expressed using the adapted Searlean framework in Caton and López (Reference Caton, López, Marroquín and Wenzel2020):

$\mathrm{X}\text{counts}\mathrm{as}\mathrm{Y}\text{in context}\mathrm{C},\text{therefore if}\mathrm{\alpha }\text{then}\mathrm{\beta }.$

The constitutive rule Y is necessarily followed by the regulative rule if α then $\mathrm{\beta }$. To illustrate, consider again the ${\mathrm{X}}_{\mathrm{a}}$ and ${\mathrm{X}}_{\mathrm{b}}$ examples from the magician community. Social norms that assign rights to valuable goods may require enforcement or inducement norms to achieve compliance. Therefore, the constitutive rule ${\mathrm{Y}}_{\mathrm{a}}$, “this magician owns this illusion,” necessarily implies the regulative rule: if ${\mathrm{\alpha }}_{\mathrm{a}}$ “a second magician performs the illusion elsewhere without attribution,” then ${\mathrm{\beta }}_{\mathrm{a}}$, “peers in the community reduce their respect and esteem for the second magician.” Searle (Reference Searle1995: 104 ff.) frames the implied regulative rules as structuring the power relations within a community. An individual’s power in any given situation can always be expressed as “the power to do something or constrain someone else from doing something” (Searle Reference Searle1995: 104). Therefore, any status function Y implies an agency function whereby person (or group) S has or does not have the power to take action A. There are numerous formulations of this general structure. In the magician community, assigning ownership status through ${\mathrm{Y}}_{\mathrm{a}}$ means that the originator magician $S_{\mathrm{o}}$ is allowed under the rules to take A, “perform the novel illusion.”

This community’s strongest rules of ownership imply that nonowners such as the would-be copyist magician, $S_{\mathrm{c}}$, are not permitted to take action A. Furthermore, if a person $S_{\mathrm{c}}$ does take action A, then another set of regulative rules, namely enforcement rules that are composed of the same general structure, enable all other persons of the community to enforce ${\mathrm{Y}}_{\mathrm{a}}$ by shunning or reducing their respect and esteem for $S_{\mathrm{c}}$. All these rules in use emerge as a consequence of the community first constituting the ownership rules. Notice that the regulative rules, which are necessarily implied by the constitutive rules, draw the contours around freedom of expression. Because magical illusions are nearly pure knowledge goods, their performance by magicians and their consumption by the viewing public are acts of economic exchange that are inseparable from the speech acts used to make their exchange.

3.5 Conclusion: Individual Sovereignty and Knowledge Content

How do communities coproduce knowledge governance? Traditional approaches treat knowledge governance as non-rival and its production as vulnerable to free riding, which internal mechanisms and policy interventions can be designed to ameliorate. Much of the scholarship on knowledge governance aims to understand these organic community mechanisms and to design effective external interventions to solve free-riding on non-rival resources. Policy discussions often conflate individual production of knowledge goods with collective coproduction of knowledge governance. Substantial scholarly effort has been deployed to clarify this confusion with resort to models of economic entrepreneurship within rules distinct from institutional entrepreneurship to change rules.

This chapter has instead set non-rivalry and free-riding aside, focusing instead on the degree of individual sovereignty enjoyed in a community and the degree of knowledge content in the economic goods that community members exchange. In contexts where the knowledge content of economic exchange is relatively high, and where individuals are sovereign in their expression of ideas, people’s ordinary economic activity contributes to the coproduction of knowledge governance. To make the case for this, this chapter has drawn elements from four large bodies of work: law and economics, political theory, IAD, and Searle’s ontology of institutions. Salient to these varied approaches are two fundamental features that carry useful implications for governing knowledge commons. First, scholars in all four areas treat social institutions as the shared product of collective action. To varying extents, scholars in all four areas also distinguish between formal and informal institutions. Second, people’s use of language and repeated interaction to form shared understandings often contributes directly to this rule-producing collective action. The main contribution of the chapter is to draw attention to an implication of this latter point. Specifically, as the degree of knowledge content in economic goods increases, that is, as the scalar discussed earlier in the paper, $k\to 1$, and as individuals have more sovereignty, then we can expect endogeneity of economic and institutional entrepreneurship, such that people in their ordinary economic behavior simultaneously pursue their individual ends while contributing to the coproduction of the shared governance rules that sustain the community.

How do communities shape their rules? We have focused on the collective action of individuals as a direct outcome of their ordinary economizing interaction within communities. Individuals become members of communities by satisfying various boundary rules, defined along traditional geographic as well as emergent non-geographic margins. Community membership means individuals agreeing to be regulated by the communities. By interacting within those rules, individuals contribute to the process of repeated interaction and trial-and-error evolution of those rules. By contributing to the evolution and creation of new shared understandings, their interaction is constitutive of new rules on the margin. We can see this especially in cases where innovators work within extant rules while exerting pressure on the creation of new and replacement rules. In other words, entrepreneurship within rules often channels innovation toward the margins of a community’s shared understanding. This seems to be pronounced in contexts of high knowledge content. Many knowledge commons contexts, for example, self-governing internet communities, have an egalitarian ethos and a presumption that knowledge and ideas are free and mutually shared. In these communities, shared resources are like shared beliefs, and the collective ethos may well be both cause and effect of these underlying shared understandings. For example, cases have been studied in areas of internet governance and self-governing online communities. Harris (Reference Friedman2018) presents a case study of online pirate communities who collectively define and enforce effective boundary and within-group rules. Similarly, Gradoz and Raux (Chapter 9) study website communities where members self-define and self-enforce rules and freely enter and leave communities. Members who sufficiently push the boundaries of agreed-upon rules become classified as trolls, and enforcement norms are used to push undesired activity to the margins, sometimes resulting in groups of trolls establishing their own communities and rules. Interestingly, geography is orthogonal to the definition of boundary rules in these communities. Yet geography can still be an advantage to intergroup interactions. Leeson (Reference Leeson2008) explains how large populations of diverse individuals and groups use signaling mechanisms (i.e., they convey low-cost information about more subtle knowledge) to solve social distance obstacles to exchange. In contexts of knowledge goods such as creative goods industries, where the disclosure problem discussed earlier in the chapter can deter exchange, within-group norms enforce attribution, and enable sharing. Recent evidence suggests that agglomeration economies are more pronounced where creators are in closer communication with each other, especially by cross-group geographic proximity (Tao et al. 2019). Similarly, the global scientific community spans all geographic boundaries, yet maintains within-group social proximity through certain rules that promote coproduction of governance and outcomes (Kealey and Ricketts 2014; Chapter 1). In these and many similar contexts, future research may further untangle the relationships between people’s ordinary economic activity and the coproduction of knowledge governance.

The analysis carries social and policy implications at broad levels. Individual sovereignty is not exclusively about state infringement on the individual sphere of authority as defined by formal rules such as constitutions and legislation. Because economic exchange is idea exchange in contexts of high knowledge content, individual sovereignty reduces to freedom of expression in many of these contexts. Sovereignty can therefore be perturbed by state rules that attenuate otherwise eligible members’ access to boundary rules, or by state action that distorts organic within-group rules. Strong exit and voice can be used as mechanisms to avert concentrations of power. As applied to policy, the state’s implied role is to provide external structure for knowledge goods communities to maximize internal access for economic exchange (Buchanan Reference Buchanan1996; Boettke and Candela Reference Boettke and Candela2017) and viewpoint diversity (V. Ostrom Reference Ostrom2006; Aligica et al. Reference Aligica, Boettke and Tarko2019). Meanwhile, nonstate positions of power in a community can also perturb individual sovereignty. In communities with concentrations of power, individual sovereignty is subject to greater uncertainty and is less extensive in scope. In communities where power is more evenly distributed, however, individual sovereignty is of a larger scope and greater certainty. In summary, individual sovereignty in a community necessarily implies access to the arena in which people exchange ideas. As applied to knowledge goods contexts as identified in this chapter, this open access priority implies a polycentric approach and a reliance on within-group mechanisms to coproduce, enforce, and sustain shared governance rules.