Nobel Prize in Economics 2009
Two economists, Ostrom and Williamson split this year's award
Oct 12, 2009
Whether you know it or not, economics impacts all of your lives. To most of you, the academic study of economics can be stupefying, but it's a fascinating field of study, and you shouldn't ignore it. For the layman, a cursory examination of the work of Nobel Prize in Economics recipients is a good place to start.
In 2008, Paul Krugman won the Nobel Prize in Economics for his work in combining the intricacies of international trade and economic geography to explain the effects of globalization, free trade and worldwide urbanization. The 2009 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, the award's official name, goes to two economists: Elinor Ostrom and Oliver Williamson for their work in examining the way decisions are made outside the market.
Elinor Olstrom: Managing resources without government regulation and outside the market
Ostrom is the first woman to receive the award, which began in 1969. A professor at Indiana University, she won the Nobel "for her analysis of economic governance, especially the commons," according to the Royal Swedish Academy of Sciences press release.
Ostrom challenged the conventional wisdom that common property is best managed by governments or corporations.
She concluded that user-managed fish stocks, pastures, woods, lakes and groundwater basins were often better taken care of by the people using the resource than if regulated by the government or privatized. Her research shows that people can develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest. In other words, it's possible for Americans to work collectively to solve problems outside of the marketplace and without the need for government regulation.
Climate change is an issue Ostrom believes can't wait for government regulation to solve, yet, as the Wall Street Journal reported, when it comes to a large-scale problem like global warming there very few existing relationships to build on, thus making a grace-roots effort difficult to get off the ground.
"But that doesn't mean we should just wait until the international agreement comes through," Ostrom told the Wall Street Journal. She said the government should encourage people to use solar power and bicycle to work.
Oliver Williamson: Corporations can effectively make decisions
The other half of the $1.4 million award money, went to Professor Williamson for his work in the 1960s which he discovered that sometimes it's more effective to leave decisions up to corporations rather than the market.
Prior to Williamson's research economists simply looked at corporations as a black box with basic inputs and outputs; they didn't look at what was happening inside the company.
When Williamson decided to peer into the inner-working of corporations he learned that it's sometimes more efficient for a corporation to make a decision than say a group of discreet individuals looking out for their own best interests.
For instance, imagine a Web development project with a team of three developers, one designer, a tester and a project manager. Halfway through the project, something your competition has done requires that you make significant changes.
Now if everyone on the team is an employee, workers can argue about what needs to be done, but ultimately the CEO, or someone in the hierarchy, will decide what to do. However, if each team member were an independent contractor, major project changes could result in the renegotiation of contracts, which take time and cost money, and each contractor would try to use the contract to their advantage, something employees couldn't do.
Sources
The Prize in Economics 2009 Press Release by Erik Huss Press Officer and Editor Royal Swedish Academy of Sciences
Ostrom, Williamson Win Nobel Prize for Economics By Justin Lahart and David Wessel Wall Street Journal
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