Monday, October 12, 2009

A Most Excellent Pair of Nobels

Bravo to the Swedes for selecting Oliver Williamson and Elinor Ostrom as econ Nobellers. (Nobellians? Nobelistas?) Williamson was on everyone’s short list; transaction cost economics is largely traceable to him. (Coase of course was already honored, but Williamson did more to develop and apply the germinal ideas.) Ostrom was a big surprise. She rarely publishes in economics journals (she’s officially a political scientist), and her approach is antithetical to mainstream economic thinking in almost every particular of content and method. The two make a balanced pair: Williamson uses institutional analysis to argue that hierarchy is needed if we are to uphold market discipline, and Ostrom uses it to support collective action. Much will be made of the fact that Ostrom is the first woman to win this prize, a true scandal that is not erased by moving from N=0 to N=1. It is revealing that this pioneer operates largely outside the realm of professional economics.

Incidentally, whether consciously or not, the Nobel committee has endorsed Paul Krugman’s point that, to move forward, economics has to abandon its obsession with mathematical elegance at the expense of genuine insight and usefulness. Not every economist has to be non-mathematically oriented as Ostrom and Williamson, but the discipline suffers if it cannot accord equal respect to those who do the sort of work exemplified by these two winners.

4 comments: said...

In my earlier posting on "Nobel Speculation" here, I had bet on it being for environmental or behavioral finance, but had listed Williamson as first choice if it was not one for one of those fields. Geoff Hodgson claims that he is the most cited economist of all time.

Ostrom was not on my radar screen. However, she is excellent. Her work on managing the commons helped overcome the old and very misleading narrative about "the tragedy of the commons," which continues to infect too many environmental textbooks without appropriate modification. This dates back to both the key paper on fisheries by Gordon as well as the famous paper by Garret Hardin, that is in lots of readers on environmental economics. Both of those papers seem to emphasize the virtue of private property versus any sort of "tragic" common property.

The key insight to get past this was first put forward in 1975 by Ciriacy-Wantrup and Richard Bishop in the Natural Resources Journal (Bishop is still alive and at the University of Wisconsin-Madison, my alma mater, where the editor of Land Economics, Daniel Bromley has also pursued such issues). The point is what matters is controlling access to natural resources, not who technically "owns" them.

So, if a traditional group, or any other group, is able to set up a mechanism for controlling access, then one can have commonly owned property that is not overexploited, with the Alpine grazing lands in Switzerland a classic example, with the arrangements there dating back to the 1200s (you know, out of date feudalism). In contrast, a homesteading farmer on the US Great Plains in the 1800s might technically own some land, but without barbed wire to keep out the cattle herds, he will have a hard time growing any crops.

kevin quinn said...

Well said, Peter! said...

If anybody wants to see something truly nauseating, go look at the econjobrumors blog. It is a horrible commentary on the current state of both econ grad education and the personalies of many econ grad students. The title of the thread is "Nobel Bullshit" and has hundreds of comments, the majority of which are attacking the award for Ostrom, mostly whining that they have never heard of her and therefore she does not deserve it (and furthermore, only got it because she is a woman). Gag.

Suffern AC said...

"Nobel Bullshit" indeed. Reading most of those posts makes me hope that Jurgen Habermas wins the economics prize next year. Just because. If giving the award to a political scientist who asks economics-related questions causes them that much anguish, giving it to a sociologist should thin out the ranks of the anonymous economics job seekers considerably.