Institutional and Organizational Governance: Design Principles and Adaptation

Abstract: We show how Ostrom’s (1990) institutional design principles and Libecap’s (1989) theory of adaptive governance explain and predict when inter- and intra-firm adjustment toward efficient outcomes is likely. We argue that the principles developed to explain common-pool resource problems are isomorphic to governance club-goods problems, which are central to inter- and intra-firm coordination. We illustrate our integrative Ostrom/Libecap framework with several examples and discuss why adaptation is typically more effective in governance than in institutional design. We consider how the institutional governance literature enriches organizational governance research, and vice versa, especially through the emphasis of organizational governance research on appropriability.