American economists Elinor Ostrom and today (Monday) were awarded the Nobel Prize in economics. Both have gained widespread acclaim for their respective studies in economic governance.
Ostrom, 76, is the first woman to ever win the prize. To earn her share of the $1.4 million (10 million kronar) prize she debunked the long-held view that resources that are vital to the common good must be regulated, or privatized.
Whereas traditional wisdom says that groups of people are incapable of sharing a finite resource without destroying it, Ostrom's work set out to prove just the opposite – that common property can often be more effectively managed by user associations, or local organizations, than with government supervision.
"Bureaucrats sometimes do not have the correct information, while citizens and users of resources do," Ostrom said by phone at the news conference announcing the prize.
Ostrom, who teaches at Indiana University, described winning the award as "an immense surprise."
Williamson, a 77 year-old retired professor at the University of California-Berkley, has also focused on economic governance, except his work focuses on corporations. Williamson used his experience of working in the Department of Justice's Antitrust Division in the 1960s to analyze why some economic decisions are better left to the market, while others are better left to individual firms.
"Competitive markets work relatively well because buyers and sellers can turn to other trading partners in case of dissent," the Nobel judges said. "But when market competition is limited, firms are better suited for conflict resolution than markets."
Williamson's theories show that large private corporations exist because they are efficient, and that while they may sometimes abuse their power, it is better to regulate such behavior directly, as opposed to limiting their size.
In 1985, Williamson published a book entitled "The Economic Institutions of Capitalism."
"The way economists used to think of the firm was as a black box that transfer inputs into outputs, and they didn't look inside," said Williamson. "We opened up the black box."
The work of both Ostrom and Williamson was made particularly relevant, as much of the developed world is working to reform its regulatory oversight of businesses and markets. For its relevance and originality, the award's announcement was widely praised.
"Economics has been too isolated and these awards today are a sign of the greater enlightenment going around," Robert Shiller, professor of economics, Yale University told The New York Times. "We were too stuck on efficient markets and it was derailing our thinking."
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