Second-order free-rider problem

The standard fix for a Prisoner's Dilemma is to change the payoffs: punish defectors, reward contributors, write and enforce rules. But punishing costs the punisher, and the benefit goes to everyone. Supplying the rules or the punishment is itself a public good, with its own temptation to let someone else do it.

Ostrom (Governing the Commons, 1990, pp. 42–45) sets this out as the problem of supplying new institutions, citing Bates (1988) and Elster (1989). Without monitoring, commitments to new rules aren't credible, and without credible commitment there's no reason to propose the rules:

Dilemmas nested inside dilemmas

— Elinor Ostrom, Governing the Commons (1990), p. 45

Following Bates, Ostrom (p. 42) calls obtaining new rules "a second-order collective dilemma", because supplying rules is equivalent to providing another public good. Bates also notes, as Ostrom reports it (p. 42), that supplying new rules is easier in an assurance game than in a prisoner's dilemma.

Placement

A pattern, recurring one level up: usually a battle line among the would-be punishers. It shows up wherever a remedy depends on someone bearing a cost for the group:

• The public-goods experiment with a punishment option: punishing is costly to the punisher.
• Supplying a monitor or ruler turns it into a Principal-agent problem: who monitors the monitor.

How groups get round it

• Make punishment cheap or free. A Spartan who fled in battle could be designated a tresas, a "trembler", and shunned in the messes, in games and in marriage (Xenophon, Constitution of the Lacedaemonians 9; Herodotus 7.229–231). Social exclusion is carried out by everyone, at little cost to each. Whether the status was permanent is not established.
• Conscript the punishers. In the Roman fustuarium, a condemned soldier was beaten or stoned to death by his own comrades (Polybius, Histories 6.37).
• Pay or appoint a monitor, and accept the agency problem that comes with it. Ostrom (pp. 40–41) describes how the theories of the firm and the state answer it this way: one person supplies the rules and keeps the residual.
• Mutual monitoring by the people who use the resource, which is Ostrom's third puzzle (p. 45) and the subject of much of the rest of her book.

See Patterns of collective action, Governing the commons.