Proper nesting is Ostrom principles (necessary for one group to manage free riding, which the Tragedy of the Commons is one example of*) with 3 more principles:
- There have to be several levels of organization between individual and a the highest level of the group with a small number of parts at each level and a nested structure so that each higher level contains parts that are themselves lower levels. For example, this could be a family, nested within a village/tribe, nested within a municipality of tribes, nested within a federation of municipalities, nested within a nation, nested within a United Nations. Without the intermediate levels, there will be too many horizontal parts, which will lead to too high costs (especially monitoring for alignment/reduction of free riding costs).
- Each module has a certain type of interaction between its sub-modules that is mostly between its sub-modules and not between its sub-modules and other modules or other sub-modules of other modules. This seems to emerge from certain constraints on module coherence. So organelles inside a cell exchange certain molecules that are not exchanged between them and organelles in other cells, or between cells. All the way up to human social levels. Families used to exchange internally mostly cooked food and emotional intimacy. Families within villages used to exchange mostly specialty goods and services among them, and villages would exchange even more specialized goods and services. Capitalism has destroyed these intermediate levels by making exchange of anything with anyone across the globe possible, not respecting the coherence constraints of families, villages and tribes. And now even of individuals with the attention economy.
- No conflicting loyalties to entities that are themselves outside of the highest level one is part of. This dilutes the resources one puts into all the levels of the current system.
It’s based on an attempt to explain why multicellular organisms are not just a soup of organelles or organic molecules; why they have cells and organs. And also why social groups used to have strong families, villages and tribes, not just nations. Proper nesting is so far agnostic about the amount of resource exchange between the lowest level and the outside world (beyond the highest level). The nature of that exchange is mostly competitive, whereas the nature of internal exchanges within levels and between levels are mostly cooperative (except when misalignment/free riding happens), so that exchange with the external world will adapt to whatever is optimal, no relation to how resources are shared internally.
Proper nesting also arises from a cost-benefit analysis: adding more parts horizontally within a level has several costs (transaction, monitoring for alignment, and coordination) which can exceed the benefits of specialization and coordination as more parts are added. At the point where that happens, a new level that has the previous level as one of its parts is more cost effective. The main reaison d’etre of proper nesting is to reduce free riding (and other costs of adding horizontal modules), aka alignment of modules.
Free riding: happens when there is an organismal level above the part that is free riding. There are incentives against free riding and for alignment, and punishment mechanisms are provided by that higher level. The parts still occasionally/rarely go against the incentives to align their utility function (could be a satisficing function) with the higher level one. Alignment can be defined in a rigorous mathematical way when both these functions exist. Unlike the case we studied in our paper, when proper nesting occurs, part utilities CAN be defined, even when no free riding occurs.
Social dilemmas/multi-polar traps/collective action problems: happen when there is NO organismal level above the parts doing these. These are actions for which there are incentives, alignment is not defined (it only makes sense when there are both part and whole utility functions), and no punishment mechanisms exist (since no higher level can administer them). The parts almost always go with these incentives and the result is a local maximum for each of their utility functions (there is no collective utility function) that is not global.
* The Tragedy of The Commons, is actually an example of a social dilemma/multipolar trap/collective action problem because it happens when there is no higher level to prevent it (it can also be prevented by having no commons, the pure market case). When there IS a higher level (whether totalitarian or Ostrom/proper nesting) then occasional free riding can occur, but it is usually suppressed, and the TOC is avoided.