October 21, 2009, 10:00 PM ET

Nobel in Economics

The Nobel Prize in Economics this year was the first to go to a woman.

Elinor Ostrom is an excellent choice. The London Guardian praised Prof. Ostrom's work in environmental economics, especially in turning standard economics models on their pointy heads.

I praise the awardee and question the existence of the award. The economics profession, and the world, might be better off without the award and the misleading notion that economics is a science in the same way that physics and chemistry are.

But first to Elinor Ostrom and why she deserves attention. Most economists believe that expanding private property rights is everywhere and in all cases a good thing. They cite the "tragedy of the commons," a model that concludes since a free good available to all comers (like a grassy common pasture) will be overused (by owners of grazing animals in the pasture case,) eventually the common asset will be degraded to a barren and useless condition.

So when problems like environmental degradation appear, or overfishing reduces stocks to the point of extinction, standard economic theory says to increase private property rights, because the owners of the rights will pay more attention to maintaining the long-term value of the asset. This is nicely captured in the comment attributed to economist Larry Summers that nobody ever washes a rented car.

Ostrom's work shows that an unthinking individual property-rights solution is not always the best solution, especially for natural resources. But she also does not argue for government takeovers that ignore the needs and values of local populations. She argues instead, both in theory and in decades of empirical research in out of the way places around the world, that collective ownership and governance can be a more valuable "third way," leading to sustainable livelihoods for those using the common asset, and concludes it often can lead to more sustainable economics than purely private ownership.

Funded for years by the likes of the Ford Foundation and the National Science Foundation, Ostrom's work has brought nonmarket community organizations into the center of thinking about international development and environmental sustainability.

So isn't it great that there's a Nobel Prize in economics?

Surprisingly, no. We'll discuss why in my next post.

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Comments

1. klblk - October 23, 2009 at 05:40 am

The Nobel Prize in Economics is awarded for ideas, not for science.

Economic ideas help us understand the world around us and how it works, in the same way that other areas of inquiry -- whether sciences or social sciences or humanities or engineering -- do.

I don't necessarily subscribe to similar underlying beliefs, but the other winner -- Oliver Williamson -- certainly deserved his Nobel.

2. wisernow - October 23, 2009 at 07:03 am

Economics is the only route for psychologists to be awarded Nobels. We'd like it to remain, thank you.

3. dank48 - October 23, 2009 at 11:18 am

In The Black Swan, Taleb mentions that L-Dopa, which is used to treat Parkinson's, has the unfortunate side effect that it can lower a person's skepticism and increase susceptibility to irrational belief in horoscopes, tea-leaves, tarot cards, economics, and other superstitions.

4. mbelvadi - October 23, 2009 at 11:32 am

There is no such thing as the "Nobel Prize in Economics". There is a prize that a Swedish bank set up in 1968 (60 years after the real Nobel prizes were founded by Nobel's own will which listed the subjects to be awarded and did not include economics) and named it "in memory of Alfred Nobel" and ever since the media have been treating it as if it were part of the real set. If I donate a lot of money to create a prize for librarianship and call it "in memory of Alfred Nobel", can I get the media to start reporting on the "Nobel Prize in Librarianship"?

5. stinkcat - October 23, 2009 at 11:39 am

Economics is a superstition?

6. khanlon - October 23, 2009 at 04:11 pm

They should also stop awarding a Nobel Prize in Literature, since it sustains the misleading notion that literature is a science in the same way that physics and chemistry are. (?!)

7. yorklibrary - October 27, 2009 at 07:59 am

About that rented car - members of Zipcar - a collective of sorts, though privately owned - do indeed wash rented cars. They do so because they get a small reduction in the fee they pay to rent the car. They also mostly keep the interiors clean because it is a collective endeavor.