Ostrom and Williamson! [updated]

What a great pick! Not what I was expecting, but Seamus and Paul were partially right. Paul was thinking it would be a pure "theory of the firm" prize, and that's not it. Instead, Ostrom and Williamson share it for governance: Ostrom for governance and the commons, Williamson for governance and the firm.

I'm especially pleased that Ostrom was picked. Williamson certainly also is deserving, but there was very high probability that he'd eventually get it for some variant of a theory of the firm prize. Ostrom's work is less well known and is underappreciated. From the prize site:

Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote successful outcomes.

The operation of de facto systems for governing the commons, or informal transactions more generally, typically works out much better than we'd predict.

As expected, Marginal Revolution provides useful comment.

Tullock didn't get his due, but I like this prize.

Update: The National Business Review casts this as a rebuff to mainstream economics and a victory for the behaviorists. Humbug. Ostrom's work is Hayekian, not behaviorist. The behaviorists took some of her insights to test in the lab, especially concerning the nature of reciprocity. Ostrom's work isn't about how people screw things up because of poor decision making or irrationality; it's about how folks successfully can govern their own affairs even when the blackboard treatment says they can't.

It's telling that NBR also quotes Krugman, last year's winner, as saying he wasn't familiar with her work. A Prof walking down our hallway also confessed unfamiliarity. All the more reason why it's important that she won.