Elinor Ostrom and Oliver E Williamson, both of the United States, have shared the Nobel Prize for Economics for 2009 for their analyses of economic governance, that is, “the rules by which people exercise authority in companies and economic systems.”
Elinor Ostrom, Research Professor of Arizona State University in the United States, has become the first woman to win the Nobel Prize in Economic Sciences since it was established in 1968. She is also the fifth woman to be awarded a Nobel Prize in 2009 – which is a record in the history of the Nobel Prize.
Also, 2009 was also a very strong year for the United States – with 11 American citizens (some of them with dual nationality) among the 13 winners of Nobel Prizes. The American list includes President Barack Obama, who won the Nobel Peace Prize.
The Royal Swedish Academy of Sciences noted that, over the past 3 decades, the work done by Elinor Ostrom and Oliver Williamson had “advanced research in economic governance from the fringe to the forefront of scientific attention” and that their research showed that “economic analysis can shed light on most forms of social organisation.”
According to the two Nobel laureates, issues of governance have been at the heart of the current global economic crisis. They believe that failure by boards of directors, for example, to “police excessive compensation” or prevent bonuses that reward excessive risk-taking could be considered as an issue of corporate governance.
Elinor Ostrom, working from the Workshop in Political Theory and Policy Analysis, of Indiana University, has focused her career on studying the interaction of people and natural resources. “Going against the common theory, Ostrom proved how common resources can be successfully managed by the groups using it,” the Royal Swedish Academy of Sciences said in its citation.
The work by Oliver E Williamson, 77, who is at the Walter A Haas School of Business, of the University of California, Berkeley, is centred on the boundaries of the ‘firm’ and the reasons for economic activity inside of firms. He sought to know the answers to these questions: “Why is there so much vertical integration in the marketplace; why don’t all of us just work for ourselves and sign contracts with each other instead of working together inside of a big company?”
Williamson was cited by the Royal Swedish Academy of Sciences for his studies on how organisations – including companies – are structured and how that “affects the cost of doing business.”
The Academy went on to say the theory of Oliver E Williamson states that “big private corporations exist primarily because they are efficient; they are established since they make owners, workers, customers and suppliers better off than they would be under alternative institutional arrangements.”
According to Williamson, even though large corporations may abuse their power, “it is better to regulate such behavior directly rather than with policies that limit the size of corporations.”
The Royal Swedish Academy of Sciences praised Elinor Ostrom for her “innovative work” in challenging the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatised. Based on a number of studies of user-managed fish stocks, woods, lakes, pastures and groundwater basins, she concluded that “the outcomes are, more often than not, better than predicted by standard theories.”
In one of her remarkable publications in 1990, Elinor Ostrom studied both successful and unsuccessful ways of governing natural resources, fisheries, forests, grazing lands, irrigation system and oil fields that are used by individuals.
The Economics Prize was the last Nobel award to be announced in 2009. The Economics Prize, however, was not one of the original Nobel Prizes, but was later created by the Swedish central bank in memory of Alfred Nobel.