Political Scientist Elinor Ostrom Wins Nobel Prize in Economics

The New York Times has the story, "Two Americans Are Awarded Nobel in Economics."

Elinor Ostrom and Oliver Williamson share the award for their research in the New Institutional Economics, and especially "common pool resources." John Sides at The Monkey Cage has a brief roundup. One link there is to Tyler Cowen, who says the award is "a nod in the direction of social science, rather than economics per se ... It's rewarding larger rather than smaller ideas, practical economics rather than abstract theory."

It's been some time since I really engaged this kind of research. A lot of this deals with overcoming tragedies of collective action, and it's one of the more fascinating areas of political science research outside of my securities studies niche. Ostrom is past president of the APSA. See her Presidential Address, American Political Science Association (1997), "A Behavioral Approach to the Rational Choice Theory of Collective Action."

Plus, here's a passage from the information page for Ostrom's book, Governing the Commons: The Evolution of Institutions for Collective Action:

Whenever a group of people depend on a resource that everybody uses but nobody owns, and where one person's use effects another person's ability to use the resource, either the population fails to provide the resource, overconsumes and/or fails to replenish it, or they construct an institution for undertaking and managing collective action. The common pool resource (CPR) can be a fishery, a grazing ground, the Internet, the electromagnetic spectrum, a park, the air, scientific knowledge. The institution can be a body of informal norms that are disseminated by word of mouth, enforced by gossip or religious stricture, and passed from one generation to another, or a body of formal written laws that are enforced by state agencies, or a marketplace that treats the resource as private property, or a mixture of these forms. In the real world of fishing grounds and wireless competition, CPR institutions that succeed are those that survive, and those that fail sometimes cause the resource to disappear (e.g., salmon in the Pacific Northwest).

Elinor Ostrom's founding role in the evolution of an interdiscipline of cooperation studies grew from her challenge to currently accepted wisdom about institutions for collective action, her careful inductive examination of empirical studies of common pool resource management, and her insistence on interdisciplinary analysis. The dynamics she uncovered in her research - seven principles common to most successful, enduring common pool resource arrangements - are the starting point for anyone who wants to know how careful theoretical and experimental work can provide practical guidance for policy.

"The word commons originally denoted pastureland treated as a common resource, where individual herders were free to graze their sheep or cattle. The land can support a limited number of grazing animals. The temptation to graze more than one's share is a rational strategy for an individual herder. But if all succumb to the same temptation, the grass ceases to grow and the value of the pasture to everybody disappears."

In a 1986 lecture, Elinor Ostrom challenged the inexorable inevitability of Hardin's tragedy, noting that the situation described in Garrett Hardin's classic 1968 paper "The Tragedy of the Commons" has "the same underlying structure as the decision facing each prisoner in the so-called Prisoner's dilemma game." She also wrote:

"The Prisoner's Dilemma game has fascinated scholars in many fields. The paradox that individually rational strategies lead to collectively irrational outcomes seems to challenge a fundamental faith that rational human beings can achieve rational results. In the introduction to a recently published book, Paradoxes of Rationality and Cooperation, Richmond Campbell explains the "deep attraction" of the dilemma".

In her 1986 lecture, Ostrom emphasized the connection between the tragedy of the commons and the Prisoner's Dilemma game, but had the scientific curiosity to inquire whether tragically locked-in Prisoner's Dilemma strategies actually constrained human choice in all cases where humans have documented their use of common pool resources - she shrewdly understand that the cases in which people overcame the barriers to collective action are as important as the cases in which they fail:

"Scholars and government officials presume that all participants in situations with the structure of a PD game are necessarily trapped in the structure of the situation; as prisoners are trapped in their cells, participants are themselves trapped in their own mental apparatus. I shall argue that the structure is conceptually and methodologically necessary for analysis, but not an empirical necessity. The inability of participants to change the structure may be an empirical reality in some situations. It is not an empirical reality in many situations, however."

Ostrom argued from well-documented cases of informal institutions that had evolved into formal if localized arrangements, sometimes lasting for centuries, that groups could evolve effective institutions without externally coercive authority - if they could solve the "common set of problems." The design principles that Ostrom extracted from cases of successful CPR management turned out to be missing from most of the cases of failed CPR management she investigated - evidence that these design principles are clues to solutions to the problems preventing collective action in many instances. Ostrom argued forcefully that neither direct intervention by the state nor total privatization are necessary for people to evolve successful institutions - although state-provided courts lower the costs of creating the institutions, and the market value of well-managed CPRs provides strong incentive to create, agree, and maintain such arrangements.