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Oct 12, 2009 12:07 PM by Associated Press

Two Americans win Nobel economics prize

Elinor Ostrom became the first woman to win a Nobel Prize in economics on Monday, honored along with fellow American Oliver Williamson for analyzing economic governance - the rules by which people exercise authority in companies and economic systems.

Ostrom was also the fifth woman to win a Nobel award this year - a record for the prestigious honors.

It was also an exceptionally strong year for the United States, with 11 American citizens - some of them with dual nationality - among the 13 Nobel winners, including President Barack Obama, who won the Nobel Peace Prize on Friday.

Ostrom, 76, and Williamson, 77, shared the 10 million kronor ($1.4 million) economics prize for work that "advanced economic governance research from the fringe to the forefront of scientific attention," the Royal Swedish Academy of Sciences said.

Ostrom, a political scientist at Indiana University, showed how common resources - forests, fisheries, oil fields or grazing lands - can be managed successfully by the people who use them, rather than by governments or private companies.

Williamson, an economist at the University of California, Berkeley, focused on how firms and markets differ in the ways that they resolve conflicts. He found that companies are typically better able to resolve conflicts than markets when competition is limited, the citation said.

The academy did not specifically cite the global financial crisis, but many of the problems at the heart of the current upheaval - bonuses, executive compensation, risky and poorly understood securities - involve a perceived lack of regulatory oversight by government officials or by corporate boards. The Nobel awards on Monday were clearly a nod to the role of rules, institutions and regulations in making markets work.

"There has been a huge discussion how the big banks, the big investment banks have acted badly, with bosses who have misused their power, misused their shareholders' confidence, and that is in line with (Williamson's) theories," prize committee member Per Krusell said.

Ostrom, also the founding director of Arizona State University's Center for the Study of Institutional Diversity, devoted her career to studying the interaction of people and natural resources. One notable publication she wrote in 1990 examined both successful and unsuccessful ways of governing natural resources - forests, fisheries, oil fields, grazing lands and irrigation systems - that are used by individuals.

Ostrom's work challenged conventional wisdom, showing that common resources can be successfully managed without privatization or government regulation.

To explain her ideas, the academy cited an example about dams in Nepal.

Local people had for many years successfully managed irrigation systems to allocate water between users, but then the government decided to build modern dams made of concrete and steel with the help of foreign donors.

"Despite flawless engineering, many of these projects have ended in failure," the academy said.

That was because the new, modern dams cut out communications and ties between the users. The new dams required little maintenance whereas the earthen local dams forced users to work together to keep them functional.

Ostrom told the academy by telephone that she was surprised by their choice.

"There are many, many people who have struggled mightily and to be chosen for this prize is a great honor," Ostrom said. "I'm still a little bit in shock."

Williamson said he was "gratified" by the honor and hoped that in the future "organizations will play a more prominent role in the study of economic activity."

"The organization of the government itself is something which we ought to examine in a more self-conscious way - the Federal Reserve and the Treasury and the Securities Exchange Commission," Williamson said. "The mission that each of them has is mainly economic, but should be informed by good organizational practices."

 

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