Last week, the Nobel Prize in economics went to Elinor Ostrom and Oliver Williamson ’55, both non-theoretical economists. This spurred significant interest in the blogosphere due to the unconventionality of the recipients’ backgrounds. It is therefore worthwhile to consider their research in the context of the current economic landscape — this may help explain why Ostrom and Oliver in particular were chosen. Furthermore, because Ostrom is actually not an economist, but a political scientist, the judges have encouraged suggestions to change how we view the economics category.
This brings us to the questions: What exactly should economics be thought of in this current day and age, and how will the revolution in bank infrastructure affect how we view economics?
There are so many reasons why Ostrom’s award has been the subject of such buzz. Besides being the first woman to receive the Economics prize, Ostrom was also a political scientist by practice. In fact, while Ostrom’s research was related to the finance industry (economic governance), the purpose of her research was to address a much broader set of questions. Ostrom had studied the management of common resources with case studies including Alaska’s fisheries and her theories on this kind of management have been transposed onto other matters — the most relevant economic ones include solutions to managing common property by making users bear external costs of their utilization with government regulations. Ostrom’s research is comparatively more empirical and less geared towards explaining the finance markets. However, her research may have longtime bearings on public policies regarding climate change.
Williamson is the less controversial winner. An an undergraduate Sloan graduate, Williamson’s research focused on the differences between companies’ and markets’ reactions to conflicts. While he had long been a contender for the Nobel Prize, receiving the Prize now is timely because his work shows how corporations expand and vertically integrate. Williamson’s studies focus on determining the boundaries of firms and the rationale behind firms’ actions. Turning his head to corporate companies, he notes that “hierarchical organizations sometimes dominate markets because they provide a cheaper way to resolve conflicts.” However, Williamson argues, firm-based hierarchy could be dealt with if a contract with another party in the industry could be resolved or trading partners could be found to alleviate the burden of conflicts.
So what exactly is economics as the Nobel committee sees it? While one perspective of MIT economics is that of a math-driven study, more and more people refer to economics as an inter-disciplinary topic. It seems that the Nobel Prize committee is suggesting that economics can be viewed more qualitatively than it had been before. It expands the horizons of the definition of “economic science.” Ostrom declared herself to be a “political economist” — we begin to wonder where the line between economics and politics blurs.
The fact that the awards this year were presented to staunch non-theorists may also underscore the impact that the economic recession has had on a global scale. Both Ostrom’s and Williamson’s research tie back to economic governance, relationships and non-market institutions. Seeing that the whole economic system has been under scrutiny recently, it is rather appropriate that these economists are recognized for such pertinent research.
However, will future Nobel Prizes also begin to follow this trend of applicability rather than breakthrough theories? Or is this merely a byproduct of coincidental timing and a reflection of the gravity of the economic situation (and system) at hand? While both Williamson and Ostrom’s research implicate the government’s oversight, Williamson’s research can also be expanded to influence debates concerning health care and global warming. In dealing with the current financial situation, neither explicitly undermine the government’s position. The research of both economists, however, promoted government intervention and dealt heavily with system organization and structure.