STOCKHOLM (Reuters) - A U.S. academic who proved that communities can trump state control and corporations became the first woman to win the Nobel prize in economics on Monday, sharing it with an expert on how companies make decisions whose work could influence post-crisis regulation.
Elinor Ostrom of Indiana University defied conventional wisdom with studies that showed that user-managed properties — such as community fish stocks or woodland areas — more often than not were better run than standard theories predicted.
University of California, Berkeley economist Oliver Williamson, the other winner, looked at how incentives within companies, government and other organizations affect decisions, adding human dimensions such as social norms to a field often thought of in terms of a hypothetical perfect market.
The two will share the Royal Swedish Academy of Sciences award of 10 million Swedish crown ($1.4 million) prize.
Before Ostrom, the previously accepted view was that common property was poorly managed and should be either regulated centrally or privatized.
“Since we have found that bureaucrats sometimes do not have the correct information while citizens and users of resources do, we hope it helps encourage a sense of capacity and power,” Ostrom told a news conference via telephone.
After a week of Nobel drama that included the gasp-inducing selection of U.S. President Barack Obama for the peace prize, the economics category risked being an anti-climax.
But the choice of a woman for a prize in a field dominated by men added a final twist to this year’s awards, showing again the Nobel committees’ penchant for springing surprises.
“There are many, many people who have struggled mightily and to be chosen for this prize is a great honor and I’m still a little bit in shock,” Ostrom, a professor in political science, told the news conference.
Studies of how organizations function may sound dry but the examples that pepper Ostrom’s work are anything but. A colorful case in point: grasslands in Mongolia, China and Russia.
When China and Russia imposed agricultural collectives, the grasslands became more heavily degraded than in Mongolia, where nomads moved herds with the seasons. When China later privatized
some grasslands the land became even more degraded.
“Both socialism and privatization are associated with worse long-term outcomes than those observed in traditional group-based governance,” the academy noted.
The academy said Ostrom and Williamson helped explain that economic analysis can shed light on most forms of social organization.
“Economic transactions take place not only in markets, but also within firms, associations, households, and agencies,” it said, adding that economic theory delved deeply into markets but had not sufficiently explored this huge area of activity.
Ostrom, 76, whose work was partly inspired by Williamson, gathered her most important research in a 1990 book called “Governing the Commons: the Evolution of Institutions for Collective Action.”
Williamson did much of his key work in the 1970s. He showed how hierarchical organizations could thrive because they were effective at resolving conflicts and in some ways were more efficient than market-based systems.
But he also argued that problems could emerge when executive authority was abused, making such systems less productive.
UC Berkeley economist George Akerlof, who won the Nobel prize in 2001, said Williamson’s work helped people understand daily life in organizations from kindergarten on up and also was seminal for understanding the recent financial crisis and creating new regulation.
“A lot of the problem was in organizations; they were giving people the wrong incentives. If people had thought about those incentives through Olly’s eyes, and what was actually being done, we would have known that this crisis was going to occur and why,” Akerlof told Reuters.
Williamson, who said the possibility of bagging a Nobel always came to mind at this time of the year, called himself “a lucky guy.”
He woke at about 2:30 a.m. and wanted to get back to sleep. An hour later the phone rang and his son answered, telling Williamson, “I think this is the call.”
Speaking to Reuters, the 77-year-old economist said organizational theory was becoming more vibrant and offered tools to fight future crises by looking within organizations.
“Are there relationships between the Fed and the banking sector, on which it has such a significant influence, that haven’t been thought through as fully as they might in organizational terms?” he asked.
The economics prize, officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was established in 1968. It is not part of the original group of awards set out in dynamite tycoon Nobel’s 1895 will.
($1=7.037 Swedish Crown)
Additional reporting by Peter Henderson in San Francisco and Adam Cox in Stockholm; Editing by Alison Williams and Cynthia Osterman