The 2009 Nobel prize for economics recently was awarded to two Americans – Elinor Ostrom and Oliver E. Williamson – for complementary ideas on economic governance.
Ostrom, a professor of political science at Indiana University, is the author of “Governing the Commons: The Evolution of Institutions for Collective Action,” and numerous articles, including “Policy Analysis in the Future of Good Societies,” written earlier this decade.
In awarding the prize, the Royal Swedish Academy of Sciences noted that Ostrom “has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized.” Such common property might include fisheries, forests, aquifers, and even the air. She suggests that, more often than thought, users can cooperatively manage the resources themselves to successfully obtain continuing joint benefits.
Common property forest resource management, for example, has been practiced and studied in China, India, Mali, Portugal, Sweden, and various other parts of the world. “When local users of a forest have a long-term perspective, they are more likely to monitor each other’s use of the land, developing rules for behavior,” Ostrom said.
(Lars Carlsson provides an interesting discussion of some of Ostrom’s ideas and the complex issues affecting the forest commons in Sweden in “Keeping Away From the Leviathan: The Case of the Swedish Forest Commons,” available at http://www.unesco.org/most/dsp51.htm.)
Williamson is professor of business, economics, and law at the University of California, Berkley. The Academy noted that Williamson “has argued that markets and hierarchical organizations, such as firms, represent alternative governance structures which differ in their approaches to resolving conflicts of interest.”
In his writings, for example, Williamson provides insights into the conditions and circumstances that determine the boundaries of a firm (e.g., how much it is vertically integrated versus how much it relies on out-sourcing and contracts with other suppliers.)
According to Williamson’s observations, “Activities are more likely to be organized inside firms when transactions are complex and assets are relationship-specific,” the Academy noted. Also according to Williamson’s theories, “large private corporations exist primarily because they are efficient… When corporations fail to deliver efficiency gains, their existence will be called in question.”
Although Williamson’s ideas are relevant to company executives, policy planners, and others, his writings seem more targeted to other academicians. Among works by Williamson that might interest business leaders are “The Theory of the Firm as Governance Structure: From Choice to Contract,” and “The Economic Institutions of Capitalism.”