Seldom has the awarding of Nobel prizes received such worldwide attention as happened recently. Although much of the focus was on the Peace Prize, perhaps of even greater historic significance was the awarding of the Nobel Prize in Economics.
Of the 537 Nobel Prizes bestowed in the areas of physics, chemistry, medicine, literature, peace, and economics since 1901, twenty-three organizations have been awarded the prizes, and 762 men and 40 women have been individually honored. The youngest recipient was 25 and the oldest 90 years of age; winners this year are 76 and 77. This month was the 41st occasion for the presentation of the economics prize since the first was given in 1969.
While President Obama was the third sitting US president to be awarded the Nobel distinction, another American was the first female to receive the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, commonly known as the Nobel Prize in Economics. She is Dr. Elinor Ostrom, professor of political science and professor at the School of Public and Environment Affairs, both at Indiana University. To some, her selection was a complete surprise. She didn’t appear significantly in any of the betting pools. Her impact, however, has been profound.
The co-winner, Dr. Oliver E. Williamson, is professor emeritus of business, economics, and law at the University of California, Berkeley. Both were recognized for their pioneering research into how individuals act and react within various settings, with particular notice given to the scholars’ analyses of economic governance. Simply stated, they have helped us to understand how things get done.
Human interaction is normally governed by sets of rules and regulations. The overarching purpose of these concepts or institutions is to facilitate production and exchange. Research into economic governance pertains to the nature of these entities when handling specific or general economic problems.
The Royal Swedish Academy of Sciences, which gives the award, cited the two Americans for their studies in economic governance, which began in the early 1970s, and noted how their efforts complemented each other. The citation particularly spotlighted their work on the way people and organizations make decisions and cooperate outside of traditional markets. It happens a lot more than you would think.
Professor Ostrom was especially lauded for her efforts in examining how “common property can be successfully managed by user association.” A significant portion of Ostrom’s efforts involved field work experiments, case studies, and research on comparisons of the preservation of land governed by indigenous groups rather than central rule.
Over the years, Ostrom has given special attention in examining the viability of conventional wisdom with regard to the roles played by politics, economics, and legal systems in determining how natural resources are used. She has challenged the idea that common property is normally managed poorly and, therefore, should be regulated by central authority. Her studies have pointed out that a wide variety of strategies can be useful in creating and operating economic institutions, rather than just limiting the understanding of the relationship between individuals and companies. Because she is a political scientist, her work is not well known in mainstream economics. There is no doubt, however, that she has contributed profoundly to the way we think about the systems that sometimes guide our behavior.
Williamson, the better known of the two (though both are relatively obscure to folks who don’t live and breathe this stuff), was honored for his studies of the ways conflicts of interest are handled in different kinds of hierarchical organizations. Williamson’s research findings note some of the intricacies pertaining to the haggling and disagreements inherent in markets, particularly the potential for abuse by authority. His studies emphasize that in case of dissent, competitive markets work well since buyers and sellers can seek other trading partners. However, according to the theories he developed, when competition is limited, business firms are better suited for conflict resolution outside a market context. He also demonstrated how such systems evolve. For example, purchasers who initially buy items in the open market over time often develop relationships with particular vendors and limit their future searches. Such trust relationships dictate a surprisingly large volume of current economic activity throughout the globe.
The studies of these two researchers into economic governance beyond the financial markets have played a significant role in challenging traditional thinking on these matters. As a result of their collective efforts, economic governance research has moved to the forefront of scientific notice.
In essence, these two outstanding academicians have, through their years of study and research, substantially enhanced the understanding of non-market institutions and have shed new light on economic governance by pointing out the values and methods of cooperative efforts. More importantly, they have furthered our appreciation for the complexity of interactions in the modern world.