Oliver Williamson and Elinor Ostrom Win 2009 Nobel Prize in Economics

by Sean Hackbarth

Nobel Prize in Economics

Oliver Williamson and Elinor Ostrom won the 2009 Nobel Prize in economics. Williamson is a name you should’ve run across if you’ve taken intermediate microeconomics or industrial organization courses. His worked in “new institutional economics” stood on top of Nobel laureate Ronald Coase’s work on why firms exist in the first place. The Nobel Prize committee notes:

Oliver Williamson has argued that markets and hierarchical organizations, such as firms, represent alternative governance structures which differ in their approaches to resolving conflicts of interest. The drawback of markets is that they often entail haggling and disagreement. The drawback of firms is that authority, which mitigates contention, can be abused. Competitive markets work relatively well because buyers and sellers can turn to other trading partners in case of dissent. But when market competition is limited, firms are better suited for conflict resolution than markets.

Ostrom won for her research in how real societies figured out the difficult questions of managing scarce resources. Through field studies she learned people find ways to self-organize and solve their problems. Here’s what the Nobel Prize committee had to say about Ostrom’s work:

Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes.

Think evolving standards of culture and custom. Think Edmund Burke. Also, in a related document the committee points out research Ostrom did showing that state collectivism and privatization failed to reduce the degradation of Mongolian grasslands. The lesson to be taken away isn’t that privatization is just as bad as collectivization. Rather, the best solution grows internally from the unique time-and-place-specific knowledge locals have and outsiders don’t.

John Nye summarizes Williamson’s and Ostrom’s work; Stephen Bainbridge explains Williamson’s work; and Don Boudreaux is pleased with the picks.

“Work of 2009 Economics Nobel Laureates Sheds Light on Regulation”

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