From The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2009:
Elinor Ostrom has demonstrated how common property can be successfully managed by user associations. Oliver Williamson has developed a theory where business firms serve as structures for conflict resolution. Over the last three decades these seminal contributions have advanced economic governance research from the fringe to the forefront of scientific attention.
Peter Klein writes:
Williamson was my dissertation chair and is a longtime friend. I’ll have more to say about the substance of his contributions soon but, for now, let me note that this is one of the most Austrian-friendly Nobel awards in years, perhaps since 1974. Readers interested in links between Williamson’s work, the fields of transaction cost economics and organizational economics, and the Austrian school should see Williamson’s 1991 article “Economic Institutions: Spontaneous and Intentional Governance” (Journal of Law, Economics, and Organization) or this short piece by Nicolai Foss and myself for the forthcoming Elgar Companion to Transaction Cost Economics, which I am also editing.
Thomas DiLorenzo writes:
Elinor Ostrom is also very friendly to the Public Choice School. She
has written numerous articles and books applying public choice analysis
to the issue of federalism, the organization of state and local
government, etc. She is certainly familiar with the Austrian School,
as are some of her former students who I have met over the years.
{ 18 comments }
This is a great award.
Ostrom’s work is about how commons problems can be solved locally, from the bottom up without centralized state authority. Its all about how you can get social cooperation even when something can’t (technologically) be chopped into parcels of private property.
Williamson’s work is primarily about governance within the firm. I’m less enchanted with Williamson than Ostrom, but he was Peter Klein’s dissertation advisor.
The people I was replying to disappeared by the time my comment went up…
Congratulations to both Ostrom and Williamson. This is great news for people interested in the ideas of the Austrian school of economics. Peter Klein can tell you all about Oliver Williamson’s important contributions to economic science. My latest book — co-authored with Dragos Aligicia — is entitled Challenging Institutional Analysis and Development (Routledge, 2009) and is an examination of the contributions of Lin and Vincent Ostrom to political economy and social science. And earlier paper by Chris Coyne and myself was published in JEBO — http://economics.gmu.edu/pboettke/pubs/2005/methodological_indv.pdf
It is my sincere hope that this award will bring renewed interest among young scholars entering the disciplines of economics and political science to work within an analytical framework of HUMANLY rational choice (the one Mises worked within) and all that entails for behavior, institutions, and epistemic propertieis of alternative legal, political and cultural arrangments.
With Ostrom’s award those who are interested in doing research on what Mises called Richardo’s Law of Association — or social cooperation under the division of labor — just got a great boast professionally in my opinion.
BTW, Ostrom’s most accessible book is probably Governing the Commons (Cambridge), but don’t overlook her Institutional Diversity (Princeton). As for Vincent (who I hope will also get some long overdue recognition from this award) I recommend The Meaning of Democracy and the Vulnerability of Democracies (Michigan).
Pete
I’m no expert in the fields of Williamson and Ostrom and have not read much of their work. In contrast to Klein and DiLorenzo’s statements (which are, I realize, not much on content but more on position relative to the Austrian School of Thought), I find it curious how the NYT can spin this election into a confirmation that the market failed in the current financial crisis: http://www.nytimes.com/2009/10/13/business/economy/13nobel.html?_r=2&hp
Is the Nobel Committee wrong in electing these economists in order to substantiate this claim of the NYT or is the work of these economists a too mixed bag to be seen as totally in line with Austrian economics?
So if the recipients are Austrian friendly then the award is “good” and if Austrian unfriendly or ignorant then the award is “bad”? Either you decry the Sveriges Riksbank prize or you acknowledge it, do not selectively praise it as and when it suits your purposes.
The merit of the award should lie totally in the usefulness of the work being recognized, not to which school of economic thought it is most appealing to.
Krugman’s award winning work is not incompatible with the Austrian school; his other political work and recent economic advice being the garbage that it is does nothing to dissuade from his earlier academic contributions.
I think that the NYT is fixated on this “market failure” nonsense. There is nothing in Williamson’s work to say that markets “fail.” Instead, he is looking at economics as though real live human beings exist and operate within that system.
For example, his “bounded rationality” view of the firm easily can be applied to Murray Rothbard’s “economic calculation boundaries” view of the firm. Now, Rothbard’s point was sharper, theoretically speaking, but nonetheless they are similar concepts.
Don’t forget that last year the Nobel committee chose someone who claims that governments can create prosperity by printing money. I would say that these two choices announced today are superior to whatever foolishness Krugman gives us.
Well, color me confused. I kept reading the news article over and over again looking for the “gotcha,” but all I see are some concepts that may or may not be seen in an Austrian light.
For example:
I have a hard time here differentiating between the actions of firms vs the idea that abstraction known as the market can have any action outside of the firms that comprise it. Hopefully, this will be detailed in Prof. Klein’s write-up.
As for Ostrom, she seems to be suggesting the existence of an alternative “third way,” differing from the current public vs. private ideology. So, if it isn’t private, and isn’t public, just what is it?
Are these ideas really Austrian oriented, or are they merely creating new abstractions to divert focus from the role of individual human action in the economic arena?
Other than attempting to look proactive in the face of the looming economic disaster, I have a hard time imaging any positive reason for this award. After all, they awarded it to Krugman last year, making this year’s selection hardly a logical progression.
As always, time will tell.
I think Russ roberts @cafehayek explains the private v public confusion . in Buchanan’s words “uppose that the local swamp requires draining to eliminate or reduce mosquito breeding. Let us postulate that no single citizen in the community has sufficient incentive to finance the full costs of this essentially indivisible operation. Defined in the orthodox, narrow way, the “market†fails; bilateral behavior of buyers and sellers does not remove the nuisance. “Inefficiency†presumably results. This is, however, surely an overly restricted conception of market behavior. If the market institutions, defined so narrowly, will not work, they will not meet individual objectives. Individual citizens will be led, because of the same propensity, to search voluntarily for more inclusive trading or exchange arrangements. A more complex institution may emerge to drain the swamp. The task of the economist includes the study of all such cooperative trading arrangements which become merely extensions of markets more restrictively defined”
so between the individual and the state lie voluntary institutions.
I am not quite sure, but it seems to me (from the nobel comittee summary), that the ‘coal power plant’ and ‘coal mine’ can either be owned by different subjects – in such case they call their relationship ‘market’ – or they can be owned by one subject, in which case their relationship cannot be called ‘market’, however you wouldn’t call it ‘public’ either (the subject may be ‘public’ company owned by the two previous owners).
“So if the recipients are Austrian friendly then the award is “good” and if Austrian unfriendly or ignorant then the award is “bad”? Either you decry the Sveriges Riksbank prize or you acknowledge it, do not selectively praise it as and when it suits your purposes.”
See, I don’t think I have a problem with that. After all, I can say that the government is doing “good” (in some sense) when it is protecting property rights, but that it is “bad” when it builds concentration camps. I don’t see what it has to be an “all or nothing” decision whether the prize is good or not.
Also, here, there’s a very utilitarian argument. On the one hand, I couldn’t disagree with Krugman getting the prize. He did make significant contributions in trade theory. However, I can – at the same time – say that it’s “bad” that he got it. Why? Because the Prize gives a certain authority to statements that he makes that have absolutely nothing to do with his contribution to trade theory. So, now, people can say “Of course Krugman is right about the liquidity trap. He has a Nobel!” So, even if he deserved the prize, the effect of him getting the prize is not good. (I remember talking to one of my professors about Krugman getting the prize, and he said – very aptly – that it was “poorly timed”.)
So, from an Austrian perspective, it’s fine to say that these two getting the prize is a “good thing” – that is, it will have a good effect (or at least not a negative effect) for the Austrian school.
That’s a very different thing than saying that the prize itself is “good” or “bad”. (For an analogy, I think that the Fed is a “bad” institution. But, I can still say that it’s a “good idea” for them to increase interest rates.)
So if the recipients are Austrian friendly then the award is “good” and if Austrian unfriendly or ignorant then the award is “bad”?
Face it, the prize is well-known world-wide. As a strategic matter, if the prize can be used to draw attention to Austrian economics, then why not use it? The ‘validity’ of the prize is certainly a concern, but if Austrian or Austrian-influenced economics gets the nod, won’t more people find out about it?
I have read Williamson’s article that prof. Klein linked, and my conclusion is that Williamson’s position, at least as formulated in this article, is absolutely irreconcilable with Austrian economics. In his section 5, Williamson reviews calculation debate and asserts that Mises and Hayek were wrong about socialism, while socialists were right, and the only problem he finds in socialist theory is principal-agent problem or bureaucratization: impossibility to control behavior of managers in absence of proper contractual and ownership framework. He even goes so far to assert that “opportunistic behavior” or public choice principal-agent concerns are the only reason why socialism cannot supplant capital and money markets!
But, what Mises and Hayek said is exactly the opposite. They say, assume you succeeded in creating a new brainwashed socialist man, completely committed to socialist ideology, who will blindly follow all orders from commissars; assume in a word that problem of “incentives” and “opportunism” is resolved – what you as a central planners are going to tell them to do, in absence of private property and market prices of factors of production? How much to produce, with what combination of particular factors, how much of capital, how much of labor, where and when to open a factory, where and when to close it down, where and when to extend production, where and when to scale it back?
I am afraid that there is no much reason to link Williamson to Austrian economics. On the contrary, he is quite conventional “institutionalist” without the slightest appreciation for core Austrian arguments.
I look forward to upcoming analysis and commentary of Ostrom and Williamson’s contributions in this site.
David Kramer is not impressed:
http://www.lewrockwell.com/blog/lewrw/archives/39366.html
But, socialist economists are quite impressed:
http://www.forbes.com/2009/10/12/economics-nobel-elinor-ostrom-oliver-williamson-opinions-contributors-michael-spence.html
Nye sets the record straight though: http://www.forbes.com/2009/10/12/economics-nobel-ostrom-williamson-coase-opinions-contributors-john-v-c-nye.html
Hmm talking about Nobel nomination I still have a question going about Stieglitz… French Sarkozy lately has announced his plan to modify the GDP measurement as to integrate some vague notions of sustainability into it following advice by Stieglitz. Does that mean they’ll try to put back some sort of natural resource accounting in the monetary policy through the backdoor – instead of going back to gold standard? I doubt this can be successful because it’s socialist minded France doing the suggestion… yet I wonder if this intention has already been analyzed more closely in this community?
More on Ostrom and reactions (including by Peter Boettke) here:
http://mises.org/Community/blogs/tokyotom/archive/2009/10/16/elinor-ostrom-austrian-praise-for-the-nobel-laureate-and-a-reprise-of-my-posts-on-her-thoughts-on-how-human-communities-successly-manage-commons.aspx
Abhilash Nambiar: I look forward to upcoming analysis and commentary of Ostrom and Williamson’s contributions in this site.
Hope springs eternal, but so far discussions of Ostrom here at LvMI have been virtually non-existent; most of the recent mentions have been in my own blog posts in the context of discussion of environmental issues, for which lead posters here have little appetite.
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