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Monday, October 12, 2009

Oliver E. Williamson and Elinor Ostrom Win Nobel in Economic Science


The Nobel in Economic Science was awarded to Elinor Ostrom, the first woman to receive the prize, and to Oliver E. Williamson on Monday.
They share the prize for their separate work on economic governance, organization, cooperation, relationships and nonmarket institutions.
Both professors teach at American public institutions: Ms. Ostrom at the University of Indiana, Bloomington, and Mr. Williamson at the University of California, Berkeley.
Ms. Ostrom’s work focuses on the commons, such as how pools of users manage natural resources as common property. The traditional view is that common ownership results in excessive exploitation of resources — the so-called tragedy of the commons that occurs when fishermen overfish, for example. The proposed solution is usually to make users bear the external costs of their utilization by privatizing the resource or imposing government regulations such as taxes or quotas.
Ms. Ostrom’s empirical research has shown that this explanation is “overly simplistic,” the prize committee says: There are many cases around the world in which common property is “surprisingly well-managed.” In these cases commons users “create and enforce rules that mitigate overexploitation” without having to resort to privatization and government regulation (which can both pose their own difficulties).
The grasslands in the interior of Asia — shared for centuries in traditional group-based governance — are one such example. They appeared to fare better under group-based governance than under either socialism or privatization.
Ms. Ostrom received her Ph.D. in political science at U.C.L.A., and said in a phone interview during the prize committee’s announcement that she considers herself a political economist. She said she hopes her work may guide policy on global warming.
Mr. Williamson’s work focuses on the boundaries of the firm, and the reasons for economic activity inside of firms: Why is there so much vertical integration in the marketplace? Why don’t we all just work for ourselves rather than together inside of a big firm?
His work argues that “hierarchical organizations sometimes dominate markets because they provide a cheaper way to resolve conflicts,” the committee writes. When two employees quarrel about how best to use resources, a chain of command within the firm — usually leading back to a single chief executive — makes the decision about who is right. In contrast, in the markets, both parties would have to keep negotiating until they reach an agreement of some sort, which takes time and money.
Such a firm-based hierarchy is less necessary, however, if the two parties can easily achieve an enforceable contract, or find new trading partners.
Mr. Williamson was unavailable during the prize committee’s announcement in Sweden.
When asked whether the events of the global credit crisis factored into their choice of prize recipients, a committee official said that the prize is typically not given based upon events of the past year, but rather a body of work.


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