Nobel Recognizes Research Into Economic Governance

This is the VOA Special English Economics Report, from http://voaspecialenglish.com

Economists usually study markets. Now, two Americans have won the Nobel Prize in economics for not studying markets.

They will share almost one and a half million dollars for their analysis of economic governance. This is the study of how economic activity is governed within companies, communities and other groups.

The winners are Elinor Ostrom of Indiana University in Bloomington and Oliver Williamson of the University of California, Berkeley. The prize in economic sciences has gone to sixty-three men since it was first awarded forty years ago. Elinor Ostrom is the first woman. And, like other winners over the years, her training is not limited to economics. She is a professor of political science and of public and environmental affairs.

Today, economic theory suggests that good resource management requires ownership, either private or public. If not, the thinking goes, then self-interest will lead to overuse and destruction of shared resources. Ecologist Garrett Hardin described this idea in nineteen sixty-eight as "the tragedy of the commons."

Elinor Ostrom showed how local decision making can lessen the tragedy. Her research has deepened understanding of how people balance their needs with those of others who depend on the same resources. She studied communities like farmers in Southern California who depended on a common water supply.

She documented how people who use resources often develop ways to share them. One example is forest management. She said one of the most important variables as to whether or not a forest survives is whether local people supervise the forest and each other.

Oliver Williamson has studied big companies and found that they often are better than markets at doing complex jobs. Under his theory, businesses act as structures for conflict resolution. For example, companies that own their suppliers can avoid long-term contracts and disputes over prices. This can make production more efficient and make better use of limited resources.

But businesses can also abuse their power. Professor Williamson says the best way to deal with this is not by limiting the size of companies, but through industry regulation.

The Royal Swedish Academy of Sciences said economists need to do more than study markets and prices. The Nobel judges urged more research like the kind they recognized with this year's award.

And that's the VOA Special English Economics Report.

(Adapted from a radio program broadcast 23Oct2009)

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