Ostrom, Williamson Win Nobel Prize for Economics

Two American economists, Elinor Ostrom and Oliver Williamson, who study the way decisions are made outside the markets on which many other economists focus, were awarded the Nobel Prize in economics Monday.

The judges cited "her analysis of economic governance, especially the commons," the way in which natural resources are managed as shared resources. It is an area of research that she said was relevant to questions surrounding global warming, and suggests that decisions by individuals can help solve the problem even as governments work to reach an international agreement.

Ms. Ostrom "challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized," the Nobel judges said. "Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, [Ms.] Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes."

Mr. Williamson, who is at the University of California at Berkeley, was cited for "for his analysis of economic governance, especially the boundaries of the firm" -- the reason some economic decisions are made at arm's length in markets and others are made inside a corporation. "The drawback of markets is that they often entail haggling and disagreement," the judges said. "The drawback of firms is that authority, which mitigates contention, can be abused. Competitive markets work relatively well because buyers and sellers can turn to other trading partners in case of dissent. But when market competition is limited, firms are better suited for conflict resolution than markets."

>> Williamson has deserved the prize for about fifteen years. <<

Agreed 100%!

>> He is unlike Krugman, who is simply a hack <<

Well, in recent years, Krugman has certainly become nothing but a hack. We agree fully. But once upon a time, he did some decent economics. Now I’m not saying that his early ouput was Nobel-quality work. Probably not. But at least it wasn’t worthless.

On the other hand, I’d say that in his current incarnation, Krugman is worse than worthless. He’s downright malevolent, maybe evil.)

Williamson has deserved the prize for about fifteen years. He is a heavyweight who has made solid contributions to transaction cost economics. He may tend toward the left (I am not familiar with his politics), but his work has helped economists in all camps. Williamson is one of the best choices the Nobel Committee could have made.

Many people would agree with you. And he just delivered another blow to Sheila Bair regarding her pet idea of breaking apart banks that she would consider "too big to fail".

No Easy Answer to ‘Too Big to Fail,’ Nobelist Williamson Says - BL, 2009 October 13, by Vivien Lou Chen

There’s no easy way to deal with the question of institutions whose failure might pose a threat to the financial system, said Oliver Williamson, co-winner of this year’s Nobel Economics Prize.
“There is no silver bullet,” Williamson, 77, said at a news conference yesterday at the University of California at Berkeley, where he is professor emeritus. “There is no instant answer that I or any of my students or any of my colleagues would be prepared to advance on that.”
Williamson is a founder of organizational economics -- the study of how institutions are created and developed and how they affect growth. In research that may have applications to the financial crisis, he suggested that it is better to regulate large companies than to try to break them up or limit their size.
The administration of President Barack Obama has proposed giving the Federal Reserve responsibility for overseeing financial institutions deemed “too big to fail.”
Williamson shared this year’s Nobel prize with Elinor Ostrom, a political scientist at Indiana University in Bloomington and the first woman to receive the economics award.
“There’s a possibility we could foresee some of the hazards,” such as those in the current crisis, and “take advance action,” Williamson said. The Fed and Treasury Department face “important organizational issues” similar to those raised by his work. Still, he said, he doesn’t think the crisis influenced the Nobel committee’s decision to award him the prize.
Williamson called himself “a lucky guy.”
In his academic work, Williamson found that large corporations exist primarily because they are efficient and benefit owners, workers, suppliers and customers, the Royal Swedish Academy of Sciences said today in Stockholm.

Paul Krugman was once a decent economist, but has become a hack while on Her Majesty Gray Lady's "secret service" of distorting the facts and the truth to fit her ideology.

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