Ostrom and Williamson get the Riksbank

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In a new peak of econogeekiness for me, I actually watched the webcast of the announcement of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (a.k.a. the economics Nobel, or the fake Nobel, as detractors of the field put it). So I heard it announced in Swedish that Elinor Ostrom of Indiana University and Oliver Williamson of UC Berkeley would share the prize.

Ostrom studies commons, Williamson corporations. So their link is that they “both analyze economic transactions outside markets.” I knew about Williamson, and even own one of his books (Markets and Hierarchies). But Ostrom is new to me. She has a better-tended Wikipedia page than Williamson, though—hers was updated with the prize news within seconds of the announcement; his took a few minutes.

I don’t know enough about either Ostrom or Williamson to say a lot here. I’ll troll the econoblogosphere later today to see what I can learn. In the meantime, I can report that this means Williamson now gets the most coveted possession in Berkeley: his own free campus parking spot.

Update: Ostrom is the first woman ever to win the economics prize. And she says she’s going to use her half of the prize (about $700,000) to support research and graduate students.

Update 2: It will be party time at the biennial conference of the International Association for the Study of Commons in India in January! Elinor Ostrom was the group’s first president, and seems to have been responsible for launching the new subfield—a mix of political science and economics—that studies how commonses work. You might say Garrett Hardin was responsible, with his famous 1968 article on the “Tragedy of the Commons,” which made the case that individuals acting in their own narrow interest would often destroy shared resources. But Ostrom, whom Alex Tabarrok calls “the mother of field work in developmental economics,” found all sorts of instances around the world where voluntary user associations did a pretty decent job of avoiding this tragedy.

Oliver Williamson, meanwhile, helped pioneer (back in the 1970s) the use of post-World-War-II-style mathematical microeconomics to study corporations. The No. 1 pioneer here was Ronald Coase, who won the Nobel in 1991 for pointing out that transaction costs were the crucial element in explaining why corporations existed and grew. But Williamson has done more than anyone to explain corporate behavior and corporate structure in economic terms. As Paul Krugman puts it:

Oliver Williamson’s work underlies a tremendous amount of modern economic thinking; I know it because of the attempts to model multinational corporations, almost all of which rely to some degree on his ideas.

Krugman also describes this prize as an award for New Institutional Economics. Old institutional economics was the economics of John Kenneth Galbraith (and Thorstein Veblen and Wesley Mitchell), who thought the focus on competitive markets that dominated mainstream economics missed a lot of important aspects of economic reality but didn’t offer much in the way of teachable theory to replace it. Williamson and Ostrom have just gotten a prize for working to fix that.

Update 3: Eric Falkenstein says that Williamson isn’t mathematical enough, and that therefore “it’s hard to develop models based on his work.” Still, he’s “very good for undergraduates.” (Harsh!) Those could be fighting words over at the Organizations and Markets blog, where the resident Williamsonites are presumably gonna be gushing his praises all week long, although as of Monday at 10:56 they’d managed only a paragraph. (Update within the update: Now there’s a second paragraph, with links to some older posts on Williamson.)

The far quicker Alex Tabarrok, doing all the work today because his blogging partner Tyler Cowen is on an airplane over the Atlantic, describes Williamson’s work thusly:

In Adam Smith there is the pin factory and the market and from that beginning we trace the long literature in economics focused on the twin questions, What price to set?  How much to produce?  Following Coase, Williamson asks different questions, Why a pin factory?  Why are the 18 steps to make a pin performed by a single firm rather than two or more?  Why are there many firms instead of one large firm?  Why does the pin factory not vertically integrate upwards to buy the steel factory and downwards to buy the retail hardware shop?

Meanwhile, Arnold Kling says Ostrom’s prize is a victory for the “Bloomington school of public choice” and links to a new book on the Bloomies.

And finally (for now), Steven Levitt says older economists will be thrilled with the Williamson choice and younger economists will scratch their heads, while economists in general won’t like the Ostrom choice because they’ve never heard of her and she’s really … a … political scientist:

This award demonstrates, in a way that no previous prize has, that the prize is moving toward a Nobel in Social Science, not a Nobel in economics. I don’t mean to imply this is necessarily a bad thing — economists certainly do not have a monopoly on talent within the social sciences — just that it will be unpopular among my peers.

Update 4: The Frankfurter Allgemeine Zeitung wins the Nobel prediction prize, sort of. In the introduction to an interview with Ostrom that ran on May 10, 2007, FAZ‘s Karen Horn wrote (translation mine):

Up to now the economics Nobel prize has been a male event. That could change. American Elinor Ostrom, the “Grande Dame” of institutional economics, fulfills the necessary criteria for the honor: With her work on common property she launched an important research field with political relevance.

Update 5: In an echo of Levitt’s contention that this is more a social science prize than an economics one, BYU’s Teppo Fellin calls Williamson’s Nobel a “huge win for the fields of organization theory, strategic management and organizational sociology.” None of which can be found in the economics department.

Update 6: Crooked Timber’s Kieran Healy and Henry Farrell on the Ostrom prize: Political scientists 1, Freakonomists 0. “Austrian economist” Peter Boettke, on the other hand, sees Ostrom as “firmly seated in the mainline tradition of economic scholarship from Adam Smith and David Hume to F. A. Hayek and James Buchanan.”

Update 7: But wait, there’s more (via Andrew Samwick, who got his links via others but there’s just got to be a limit to the attribution eventually, doesn’t there?): A big fat interview from 2003 with Ostrom and her husband and co-conspirator Vincent. It’s courtesy of the Mercatus Center at George Mason and, I must say, the George Masonites appear to know far more about Ostrom than any other economists do. Then there’s Michael Spence in Forbes.

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