The Swedish Academy thumbed its nose at abstract theorists this week by naming Indiana University political scientist Elinor Ostrom as the first woman to win a Nobel prize in economics. Ostrom was the darkest horse in decades, appearing on none of the short lists offered by prominent econ pundits. But the fact that she and co-winner Oliver Williamson got the award shows increasing public appreciation of the breadth of the discipline of economics.
(By way of disclosure, Ostrom is the only Nobel laureate that I know well personally. From 1986 through 1992, while in the Applied Economics Department at the University of Minnesota, I worked as part of a group including her that focused on managing common property, the work for which she just got the award.)
Bigwigs in abstract theory of finance and economics, along with many wannabes, probably will sneer at her work, if only for the fact that her 1990 book cited by the Nobel committee, “Governing the Commons: The Evolution of Institutions for Collective Action,” contains nary a mathematical equation. It can be read by any intelligent high school graduate willing to plow through some scholarly detail. That, to many other recent winners, implies her work is not even economics.
This does not mean she is not respected by many other scholars. Fellow political scientists elected her president of their national association in 1996. And her work is widely cited in several fields, including economics, sociology, anthropology, geography, forestry and fisheries management.
Her work confounds the common assumptions in much of economics that maximizing income is the dominant motivator in human decision making and that societal institutions are largely irrelevant. This parallels innovative work by Ernst Fehr, an Austrian behavioral economist whose work includes the economic effects of cooperation. Fehr was on many pundits’ lists for this year’s Nobel.
Ostrom focused on common property, things that are not owned by private individuals nor by government. Instead they are managed by groups such as villages, tribes or associations.
Conventional economic theory argued that because individuals had an incentive to use more of such common property, it would inevitably be overused or even destroyed. Garrett Hardin, a biologist, expounded this view in an influential essay, “The Tragedy of the Commons.” Hardin predicted doom for any resource not individually owned. But he did note that common property could be managed if there was a system of “mutual coercion, mutually agreed upon.”
What Hardin ignored is that there are thousands of instances of successfully managed commons where groups achieved precisely that kind of agreed-upon mutual coercion. Some of these systems, including irrigation in Spain and South Asia and pastures from Switzerland or Norway to Peru, have functioned well for many centuries.
Ostrom focused on how successful groups shaped and enforced the rules that resulted in resources being used more productively than if they had been privatized to individuals or taken over by government.
She was not alone in challenging Hardin’s widely accepted conclusion. Fikret Berkes, a geographer at the University of Manitoba, researched Turkish and Canadian fisheries. Political scientist Margaret McKean at Duke explored the millions of acres of Japanese forests still well managed by villages. Economists Robert Wade, C. Ford Runge and Daniel Bromley, respectively from the London School of Economics and the Universities of Minnesota and Wisconsin, worked on the role of common property in the economic development of poor countries. And there are dozens of other sound scholars in the field.
Human beings are complex and not always rational or profit-maximizing. Institutions are important. Many economists have long largely ignored these simple truths in their theorizing. The discipline is moving away from such treacherous assumptions and, in the process, recognizing the validity of other disciplines like political science, sociology and geography. A Nobel for Lin Ostrom is a milestone along that new path.
© 2009 Edward Lotterman
Chanarambie Consulting, Inc.