Ostrom, Williamson Win Nobel Prize for Economics

By JUSTIN LAHART and DAVID WESSEL Two American economists, Elinor Ostrom and Oliver Williamson, who study the way decisions are made outside the markets on which many other economists focus, were awarded the Nobel Prize in economics Monday. Ms. Ostrom, who teaches at Indiana University in Bloomington, Ill., is the first woman to win the prize, which, before Monday, had been awarded to 62 men since it was launched in 1969 to celebrate the 300th anniversary of the Swedish bank. The judges cited "her analysis of economic governance, especially the commons," the way in which natural resources are managed as shared resources. It is an area of research that she said was relevant to questions surrounding global warming, and suggests that decisions by individuals can help solve the problem even as governments work to reach an international agreement. View Full Image AFP/Getty Images Elinor Ostrom, left, and Oliver E. Williamson Earlier 2009 Nobel Prizes Obama Awarded Peace Prize Literature: Müller Wins for Tales of Tyranny Chemistry: Three Win for Ribosome Studies Physics: 'Masters of Light' Get Nobel Medicine: U.S. Biologists Win Nobel Ms. Ostrom "challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized," the Nobel judges said. "Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, [Ms.] 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." Ms. Ostrom, who was interviewed by phone during the announcement press conference in Stockholm, described the prize as "an immense surprise," and said, "I'm still a little bit in shock." Her Ph.D. is in political science, but she said she considers herself a political economist. Mr. Williamson, who is at the University of California at Berkeley, was cited for "for his analysis of economic governance, especially the boundaries of the firm" -- the reason some economic decisions are made at arm's length in markets and others are made inside a corporation. More Econ: Winners Shed Light on Regulation Econ laureates Key facts Williamson bio Ostrom bio 2008: Paul Krugman Is Awarded Nobel in Economics "The drawback of markets is that they often entail haggling and disagreement," the judges said. "The drawback of firms is that authority, which mitigates contention, can be abused. Competitive markets work relatively well because buyers and sellers can turn to other trading partners in case of dissent. But when market competition is limited, firms are better suited for conflict resolution than markets. A key prediction of [Mr.] Williamson's theory, which has also been supported empirically, is therefore that the propensity of economic agents to conduct their transactions inside the boundaries of a firm increases along with the relationship-specific features of their assets." The economics prize is the only one of the six Nobel prizes not created in Swedish industrialist Alfred Nobel's 1896 will, and is officially known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. The two economists will share a 10 million kronor prize (about $1.4 million). Ms. Ostrom said she hopes to devote the proceeds to supporting research and graduate students. Write to Justin Lahart at justin.lahart@wsj.com and David Wessel at capital@wsj.com