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October 18, 2009
David Warsh, Proprietor


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The Student of Working Together

Who owns the Nobel Prize in economics? A basis for an answer to that question appeared last week, when the Nobel Committee opened the door to a capacious new wing of economic research, citing political scientist Elinor Ostrom, of Indiana University, for her investigations of how ordinary citizens solve problems that arise when sharing common resources (and sometimes fail to solve them).

Over a forty-year research career, Ostrom, 76, has studied everything from the harvest of fish in the sea and grazing rights in alpine meadows, to patterns of police law enforcement and the creation of private rights to public knowledge. She found that key institutions often had relatively little to do with either top-down regulation or top-down privatization, but rather “deep mechanisms that sustain cooperation” (in the words of the prize citation) that were evolved by human beings working together over many years.

The committee meanwhile held off on a corresponding prize to high theory in the economics of organizations. It opted instead to share the prize with Oliver Williamson, of the University of California at Berkeley, for the work he did long ago on the logic of hierarchical management in large firms.

The prize was described as recognizing Ostrom and Williamson’s contribution to the understanding of “economic governance.” A great deal of that governance, it turns out, occurs in a borderlands between the firm and the state.

Like many people, I had never looked at Ostrom’s 1990 book, Governing the Commons: The Evolution of Institutions for Collective Action, until Monday morning, when the news from Stockholm sent me scurrying for a copy. Smarter guys than me, indeed most of the economics profession, had never heard of Ostrom. (Steven Levitt, of the University of Chicago, describes in an edifying way how he looked her up on Google.) I knew at least that she and her husband, Vincent, also a political scientist, had a big following at George Mason University.

Once I had a chance to read quickly though the book, however, I understood pretty well the choice of Ostrom, despite the fact that she has published less frequently in economics journals than any other person to receive the prize. Her method is the polar opposite of the logical-deductive, law-enunciating style that had dominated modern economics in the two centuries since David Ricardo took the baton from Adam Smith.

Economic ethnography (the term is Nancy Folbre’s), or fieldwork (Alex Tabarrok), is not common in economics, but it happens. Some close observers of economic arrangements (besides Ostrom) include:

Ronald Coase, for example, in 1974, showed in “The Lighthouse in Economics,” that theorizing about the necessity of government provision of lighthouses as “public goods,” from John Stuart Mill to Paul Samuelson, overlooked the fact that traditionally they had been privately provided and financed by port fees, at least in the United Kingdom. A Nobel laureate himself in 1991, Coase wrote, “What we need is more empirical work.”

Truman Bewley, a distinguished mathematical economist, spent two years in the mid-1990s interviewing 300 business executives, labor leaders, consultants, and counselors of the unemployed asking them why market pay rates continued to rise during a business downturn despite rising unemployment. In Why Wages Don’t Fall During a Recession, he wrote, ““My findings support none of the existing economic theories of wage rigidity, except those emphasizing the impact of pay cuts on morale.”

Robert Ellickson, a Yale Law School professor, in his memorable Order Without Law: How Neigbors Settle Disputes, showed how cattle ranchers in California’s Shasta County governed themselves with informal rules and social norms with infrequent appeals to outside government.

Gordon Tullock, a maverick, trained as a lawyer, for many years a Foreign Service officer, made a long string of contributions to the investigation of what he called non-market decision-making – everything from licensing requirements to mosquito abatement projects to “log-rolling” voting behavior among politicians – sufficient to fill ten volumes of his collected papers. His name is thought to have been dropped at the last minute from the Nobel citation in 1986. The prize went solely to James Buchanan instead – a formally trained economist.

What qualifies Ostrom for the award is the breadth and duration of her reconnaissance. True, she’s the first woman to win the prize, first given in 1969; she’s the first resource economist as well. What really sets her apart, though, is the way she mapped her work into a discipline that tried its best to substantially ignore her.

Not only did Ostrom grapple with the best-known statement of the presumed problem of resource depletion – the famous “Tragedy of the Commons,” as formulated by biologist Garrett Hardin in an article in Science magazine in 1968. She tackled the two leading economic interpretations of the problem as well: the prisoner’s dilemma game, often employed to argue that rational creatures can’t possibly cooperate; and the free-rider argument, advanced by the late Mancur Olson in The Logic of Collective Action in 1964, to the effect that those who can ’t be excluded from the benefits of public spending will use too much of them and pay too little.

Her illustrations are designed to show that neither of the familiar arguments for depending on government to address such problems – government should assign property rights and get out of the way; or government should tightly regulate – are as likely to achieve success as are policies that seek to secure the active participation of users of the common pool. A typically telling finding, noted by the Nobel citation: total crop yield in Nepal is frequently higher around small primitive dams built from stone, mud and trees and managed locally, than near large concrete and steel dams where irrigation users have little incentive to concern themselves with necessary dam maintenance.

“I grew up in Los Angeles,” Ostrom told a press conference on the morning of her award. “The ocean is right there. And if you pull the groundwater down, surprise, surprise, the saltwater comes in. And if they had not found a way of reducing the quantity of water they pumped, and doing a variety of other things, they would have had to give up the groundwater basin to saltwater. I was very fortunate, I started that as a seminar paper, and I kept going and going.”

With the assertion that the sorts of commons she has studied are relics of an earlier time – Nova Scotia lobster beds, Sinhalese fisheries, Japanese forests, Spanish irrigation systems – Ostrom is impatient. The tasks of managing what she calls “common pool resources” (CPRs) are enlarging, not diminishing over time – and not just “natural” resources such as air and water, or relatively intimate collectives such as condominium associations and suburban school districts, but genuinely global commons, including the earth’s climate, its production and trading systems, and even the unfathomably complex body of know-how with which problems are addressed as they arise. Understanding Knowledge As a Commons is Ostrom’s most recent book; Working Together is to be her next.

It is in this sense that the Nobel Prize in economics, too, should be understood as part of a common resource pool of knowledge about our understanding of the world. Many different people are engaged in constructing the understanding of the prize, tugging it this way and that from year to year. The most recent suggestion arrived last month in the form of an open letter from ten distinguished scientists urging the Nobel Foundation to add two new prizes (environment and public health) to the current roster and to restructure the medicine prize. The British magazine The New Scientist put them up to the task. Studiously ignored was the existence of the economics award, the only one of the foundation’s prizes not established by Alfred Nobel’s original 1895 bequest. The adage, “The dogs bark, the caravan moves on,” doesn’t begin to describe this situation, whereas Ostrom’s Governing the Commons depicts it accurately. Who owns the prize in economics? In varying degrees, we all do.

As for markets and hierarchies, the other half of the prize, there is time enough for that when Oliver Williamson delivers his Nobel lecture in December.

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There was more to read about year’s economic Nobel than ever before, much of it from newspapers and magazines. Never mind Europe, where journalist Karen Horn made the shrewdest guess, as Ulrich Fritsche notes on his bilingual Macro blog. The New York Times’ Economix, TierneyLab, Conscience of a Liberal and Freakonomics blogs, and The Wall Street Journal’s Real Time Economics , with its fourteen reporters, had plenty. There were assessments by Time’s Justin Fox, Forbes’ Elisabeth Eaves, The New Republic’s Noam Scheiber as well

Then there was the blogosphere itself. Among the highlights: an open letter by Peter Boettke, of George Mason University (himself the author, with Paul Dragos Aligica, of a book on Ostrom, Challenging Institutional Analysis and Development: The Bloomington School); a careful profile of Ostrom written a few years ago by a National Academy of Sciences writer; two particularly good interviews with Vincent and Elinor Ostrom conducted when they were honored at George Mason’s Mercatus Center in 2003; as well as current commentary by Vernon Smith, Thomas Schelling, A. Michael Spence, Lynne Kiesling and Paul Romer.

Taken altogether, it adds up to more than most of us want to read. But it’s the process by which news becomes common knowledge — as Elinor Ostrom would have it, part of the CPR.

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