Today David Henderson has penned the traditional Wall Street Journal commentary on yesterday’s Nobel award to Elinor Ostrom and Oliver Williamson. He provides an excellent summary of the importance of their work, and I recommend it to you highly. In fact, David’s theme reconciles what some commenters have observed as a political or ideological contradiction. For example, Cheryl Morgan notes that both Henry Farrell and I are thrilled at the prize, and that
Henry blogs for Crooked Timber which is a fairly left wing political blog, whereas Lynne has distinct Libertarian leanings. For both of them to be happy about the Nobel Prize seems quite remarkable.
[I would not capitalize libertarian, and would say classical liberal, but that’s a quibble.]
David nails precisely why both Henry and I can be thrilled: both Ostrom and Williamson do detailed, careful, empirical, real-world work to inform the theories they derive, and both show the value and efficacy of governance institutions that are organic, emergent, and voluntary. As David notes,
Consider Mr. Williamson’s work. Drawing on 1991 Nobel laureate Ronald Coase’s work on why firms exist, Mr. Williamson showed that these voluntary institutions exist to solve problems that arms-length market transactions have trouble solving. …
In her work on development economics, Ms. Ostrom concludes that top-down solutions don’t help poor countries.
In his entire article David has captured much of the essence of why I think their work is so important and valuable for our understanding of human action.
In Forbes, Vernon Smith has a complementary (and complimentary) article on Ostrom’s work, which naturally dovetails with his. Vernon helpfully points out that Ostrom has “relentlessly pursued” the answers to two questions:
(1) Since “everybody’s property is nobody’s property,” how is it that there are so many cases where collectives of ordinary people with no education and with none of the economists’ knowledge of “the tragedy of the commons,” in fact discover ingenious rules (institutions) for taking the “tragedy” out of a productive resource they hold in common? …
(2) As a distinguished political-economic scientist she will be the first to tell you that there are also plenty of commons problems that represent institutional failures and fragilities; she has asked why, and what makes the difference between success and failure?
Vernon also highlights another reason I love her work and find it so useful, and a reason why I think many of my more theoretical colleagues are not as aware of her work as they should be:
… Ostrom brings a distinct style in applying her skill in different methodologies. She blends field and laboratory empirical methods, economic and game theory, the really important ingredient of scientific common sense, and she constantly challenges her own understanding by looking at new potentially contrary evidence and designing new experiments to challenge her understanding of the emergent historical rules and the theory used to explicate them.
Bluntly: Ostrom is not bound by what I see as the methodological hegemony that persists in economics, and that I believe is pernicious and leads to the undervaluation of methodologically diverse political economy. That’s why, as one of my close friends emailed me yesterday morning, the first woman to win an economics Nobel is in the political science department. Our methodological hegemony serves as blinders to other effective and important ways to analyze real-world political economy questions.
That’s why when economists like Steve Levitt admit to being embarrassed at not having heard of Elinor Ostrom’s work, my reaction is that they should be embarrassed. I give him great credit for being embarrassed, and I hope that he and others will now pay closer attention to her work, and to the work of other economists who use a variety of approaches to analyze political economy questions.