1. A computer-implemented method comprising: a policy management system implemented by one or more computing devices in a service provider environment, the one or more computing devices configured with specific computing device executable instructions for: processing a request for a policy received from a virtual machine instance over a network, the virtual machine instance including an agent for communicating with the policy management system; determining that a first policy and a second policy are available for the virtual machine instance, wherein the first policy and the second policy have not been previously transmitted to the virtual machine instance; retrieving the first policy and the second policy; merging the first policy and the second policy to form an effective policy, wherein the effective policy comprises at least a portion of a first set of executable instructions that define the first policy and at least a portion of a second set of executable instructions that define the second policy; transmitting the effective policy to the virtual machine instance, the effective policy defining a configuration for the virtual machine instance; processing results of an application of the effective policy received from the virtual machine instance, wherein the results of the application of the effective policy indicate an error; and performing an action to resolve the error.