Winners may shape financial crisis debate
One scholar studies how best to manage resources like forests, fisheries and oilfields. A fellow American looks at why some companies grow so large. Together they're winners of this year's Nobel Prize in economics for groundbreaking work that could affect efforts to prevent another global financial crisis.
Elinor Ostrom, 76, known for her work on the management of common resources, is the first woman to win a Nobel in economics. She shares this year's prize with Oliver Williamson, 77, who pioneered the study of how and why companies structure themselves and how they resolve conflicts.
Monday's final prizes of 2009 capped a year in which a record five women won Nobels. And it was an exceptionally strong year for the United States, too. Eleven American citizens, some of them with dual nationality, were among the 13 Nobel winners, including President Barack Obama, who won the Nobel Peace Prize on Friday.
The Royal Swedish Academy of Sciences said it chose Ostrom and Williamson for work that "advanced economic governance research from the fringe to the forefront of scientific attention." They will share the $1.4 million prize.
Ostrom showed how common resources -- forests, fisheries, oilfields, grazing lands and irrigation systems -- can be managed successfully by the people who use them, rather than by governments or private companies.
"What we have ignored is what citizens can do and the importance of real involvement of the people involved - as opposed to just having somebody in Washington ... make a rule," Ostrom, a political scientist at Indiana University, said during a brief session with reporters in Bloomington, Ind.
Williamson, an economist at the University of California, Berkeley, focused on how companies and markets differ in resolving conflicts. He found that companies are typically better able than markets to resolve conflicts when competition is limited, the citation said.
The academy did not specifically mention the global financial crisis. But many of the problems at the heart of it -- bonuses, executive compensation, risky and poorly understood securities -- involve a perceived lack of oversight.
"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.
Experts said the two scholars' research did not suggest that more government oversight was the way to prevent financial crises. Still, they said the work of both -- especially Williamson -- could help shape debate and inspire research to help prevent another debacle like the one that triggered the global recession.
It also could influence the thinking on other divisive issues, such as health care coverage and global warming, experts said.
"The one lesson from the financial crisis is that we have overconfidence in institutions that are important to the functioning of the economy," said Barak Richman, a law professor at Duke University who completed his doctorate under Williamson's supervision. "Both Ostrom's and Williamson's research reveal how critically important it is to understand these so-called non-market institutions such as companies, governments, regulators and courts."
Ostrom, also the founding director of Arizona State University's Centre for the Study of Institutional Diversity, has devoted her career to studying the interaction of people and natural resources.
"Until her work, the thinking was, 'let the state intervene,'" said Paul Dragos Aligica, a political scientist at George Mason University. "'If you leave it to individuals to do whatever they want, resources will be depleted.' But she said `hold on' and found that's not the case." Aligica wrote his doctorate under Ostrom's guidance.
Ostrom told the academy by phone that she was surprised by its choice.
"There are many, many people who have struggled mightily, and to be chosen for this prize is a great honour," Ostrom said. "I'm still a little bit in shock."
Williamson was cited for his studies on how organizations - including companies - are structured and how it affects the cost of doing business. According to his theory, large private corporations exist primarily because they are efficient.
"Large corporations may, of course, abuse their power," the citation said. "They may for instance, participate in undesirable political lobbying and exhibit anticompetitive behaviour."
Williamson found it is better to regulate such behaviour directly rather than with policies that restrict the size of corporations, the academy said.