Elinor Ostrom celebrates winning the Nobel Prize
in economics at Indiana University on Monday.
in economics at Indiana University on Monday.
Story from the Wall Street Journal
Two American economists, Elinor Ostrom and Oliver Williamson, who study economic governance and the way decisions are made outside the markets, were awarded Monday with the Nobel Prize in economics.
Ms. Ostrom, who teaches at Indiana University in Bloomington, Ind., is the first woman to win the prize, which previously had been awarded to 62 men since it was launched in 1969.
The judges cited Ms. Ostrom's "analysis of economic governance, especially the commons," the way in which natural resources are managed as shared resources.
Her work challenged the view that when people share a finite resource, they'll end up destroying it. Such "a tragedy of the commons" argues that resources that are important for the common good need to be highly regulated, or privatized.
It's an area of research that she said was relevant to questions about global warming, and suggests that decisions by individuals can help solve the problem even as governments work to reach an international agreement.
"Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, [Ms.] Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories," the Nobel judges noted.
That's because over time, people often develop institutions, social networks and ways of interacting that solves the problem. Lobstermen in Maine, for example, have come to informally regulate, and restrict entry to, the areas where they work. Where these "lobster gangs" are prevalent, there are more lobsters.
On a larger scale, these social networks don't always work as well, notes Yale University environmental economist Matthew Kotchen -- there are fewer lobsters, for example, further away from Maine harbors. What's important, he says, is that Ms. Ostrom's work points out the importance of the networks that many economists had ignored, in part, because they couldn't come up with elegant models to describe how they worked.
"Just because you don't know how to model them doesn't' mean you can ignore them," he said.
Ms. Ostrom, 76 years old, who was interviewed by phone during the public announcement in Stockholm, described the prize as "an immense surprise." Her University of California at Los Angeles Ph.D. is in political science, but she said she considers herself a political economist.
Mr. Williamson, 77, who teaches at the University of California at Berkeley and earned his Ph.D. at Pittsburgh's Carnegie-Mellon University, was cited for "for his analysis of economic governance, especially the boundaries of the firm" -- the reason some economic decisions are made at arm's length in markets and others are made inside a corporation.
Mr. Williamson's work stems from time he spent in the late 1960s working in the Department of Justice's Antitrust Division, and noticing that there was little attention to the internal workings of companies.
"The way economists used to think of the firm was as a black box that transfer inputs into outputs, and they didn't look inside," explained Mr. Williamson, who was woken up by the call from the Nobel committee at 3:30 in the morning. "We opened up the black box."
What he found was that many economic decisions that standard theory said would be more efficiently left to the market place were actually better left within a firm.
"Competitive markets work relatively well because buyers and sellers can turn to other trading partners in case of dissent," the Nobel judges said. "But when market competition is limited, firms are better suited for conflict resolution than markets."
The economics prize is the only of the six Nobel prizes not created in Swedish industrialist Alfred Nobel's 1896 will, and is officially known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2009.
The two economists will share a 10-million kronor prize -- $1.42 million, €980,000. Ms. Ostrom said she hopes to devote the proceeds to supporting research and graduate students.
