Lin Ostrom --- Political Economist --- Wins 2009 Nobel

|Peter Boettke|

On Saturday I was in beautiful Sante Fe, NM and was having a discussion with my good friend David Henderson. We were discussing the upcoming Nobel Prize in Economics. David tends to get the nod from the WSJ to write up the summary piece on the who won the prize and why we should care.  David couldn't do it one year, so I did, 2 years ago when the winning idea of mechanism design theory.  But last year it reverted to David --- it was not a Wally Pip moment!  Anyway, we bounced around a bunch of potential winners, including our personal favorites: Alchian/Demsetz, Baumol/Kirzner, and of course Krueger/Tullock.  At the end of our conversation, I said well David if Lin Ostrom wins you can call me and I can tell you about her because I just published a book (co-authored with Dragos Aligica) about her and Vincent Ostrom's work, Challenging Institutional Analysis and Development (Routledge, 2009).  Also see the paper by Chris and I published in JEBO, which provides an overview of the research program of the Workshop in Political Theory and Policy at Indiana.

I told David that she is amazing and well deserving of the Nobel award for her pioneering work on rational choice theory (as if the choosers were human) and institutional analysis.  I then bent his ear about her work on governing the commons, institutional diversity, and learning.  I also emphasized Vincent's outstanding work -- my favorite book of his is The Meaning of Democracy and the Vulnerability of Democracies (Michigan, 1997).  The cliffnote version --- democracy is about self-governance and cultivating a self-governing citizenry who embrace the 'troubles of thinking and the cares of living' and form civic association, but democracies are about the machinations of politics, interest groups, vote motive, etc.  What institutional mechanism cultivates democracy, but avoids the pitfalls of democracies?  Think about that --- pretty radical stuff actually when you dig into it. Alas, I actually didn't put a high probability on her winning, though I was of the conviction that she should --- I should have bet, the odds were something like 50/1, perhaps I could be as generous as her (she is giving a portion of the prize money to support research and graduate education).

Many blog posts already up, especially Alex's at Marginal Revolution, are fantastic in summary.  Other announcements are wrong, but fit the concern that Scott raised earlier today at The Economic Way of Thinking.  What Lin's work demonstrates (and Williamson's as well but I will leave that to others such as Peter Klein to explain) is how individuals can in a variety of settings work to find (or stumble upon) institutional solutions that promote social cooperation and human betterment.  It is about voluntary civic association, a subset of which is commercial life, that her works highlights; not the absence of individual choice.  She her wonderful essay "A Behavioral Approach to the Rational Choice Theory of Collective Action" --- which I have summarized as a model of rational choice as if the choosers were human.  My blurb on the back of her book, Understanding Institutional Diversity reads as follows: "What emerges from Elinor Ostrom's book is precisely what the title suggests -- an understanding of the diverse nature of institutions that exist in human societies to promote human cooperation or to hinder it.  This is a significant work by one of the most thoughtful social scientists in the world and it will attract a large number of readers and enlighten them."

We can talk in more depth in the comments on Lin's great range of work from the analysis of local public economies to the idea of polycentricity, but I want to emphasize something that relates to her methodological stance and the research focus that should be of particular interest to readers of this blog.  She is both a methodological individualist (rightly understood) and a spontaneous order theorists.  In this regard, Lin Ostrom (and Vincent) have represented one manifestation of the research program in the sciences of man (praxeology) by Mises and Hayek in the 1940s.  Actors of limited cognitive capabilities are studied for how the shape and our shaped by the social structures that emerge in a variety of situations to provide voluntary solutions to complex and difficult problems, and they do so in a way that promotes social cooperation under the division of labor.  Read Human Action, chapter VIII, and Individualism: True and False, pp. 11-14 (in Individualism and Economic Order), and then look at Lin's work in Governing the Commons; Understanding Institutional Diversity; and the 3 volume McGinnis, edited volumes, Readings from the Workshop in Political Theory and Policy Analysis and I think you will see what I am talking about. She has done fundamental research on the central idea of Ricardo's Law of Association as Mises termed it.  Humanly rational choice and institutional analysis combine to address the most pressing question in the social world --- why do some institutional patterns produce societies of peace and prosperity, while others produce societies that suffer under violence and poverty?

Now to make my methodological point come home -- consider what Steven Levitt wrote today about the prize to Ostrom:

The reaction of the economics community to Elinor Ostrom’s prize will likely be quite different. The reason? If you had done a poll of academic economists yesterday and asked who Elinor Ostrom was, or what she worked on, I doubt that more than one in five economists could have given you an answer. I personally would have failed the test. I had to look her up on Wikipedia, and even after reading the entry, I have no recollection of ever seeing or hearing her name mentioned by an economist. She is a political scientist, both by training and her career — one of the most decorated political scientists around. So the fact I have never heard of her reflects badly on me, and it also highlights just how substantial the boundaries between social science disciplines remain.

So the short answer is that the economics profession is going to hate the prize going to Ostrom even more than Republicans hated the Peace prize going to Obama. Economists want this to be an economists’ prize (after all, economists are self-interested). This award demonstrates, in a way that no previous prize has, that the prize is moving toward a Nobel in Social Science, not a Nobel in economics.

I don’t mean to imply this is necessarily a bad thing — economists certainly do not have a monopoly on talent within the social sciences — just that it will be unpopular among my peers.

But Lin Ostrom is firmly seated in the mainline tradition of economic scholarship from Adam Smith and David Hume to F. A. Hayek and James Buchanan --- As Lord Acton put it: “But it is not the popular movement, but the traveling of the minds of men [and women] who sit in the seat of Adam Smith that is really serious and worthy of all attention.” So in what sense is she not an "economist" in the proper sense of the word (remember her early work was on local public economics and her more recent work was on development economics)?  It is because her methods were chosen to be appropriate to the task she was pursuing.  Humanly rational choice, institutional analysis, field work, and experimental design were her tools for social understanding.  She did not limit her work to that of Max U notions of "choice" nor instituitonally antiseptic models of 'markets' nor one size fits all models of economic development.  Instead, she has been a major contributor to public choice economics, new institutional economics, and to our understanding of polycentricity and political economy.

Congratulations to Elinor Ostrom and I hope that your award may force the economics profession to realize the scientific importance of the mainline contributors to political economy that the Nobel Prize has seen fit to recognize: Hayek (1974), Buchanan (1986), Coase (1991), North (1993), V. Smith (2002) and now Lin Ostrom (2009).  I cannot wait to read your address and to assign it to my students.

Comments

[Lee Kelly]

I had never heard of her until now, but she seems to be worthy of the award.

[Peter Boettke]

Lee,

You must not have paid attention:). On the right side of this page is a link to my book on her work, Challenging Institutional Analysis and Development (Routledge, 2009), and I have talked about her and Vincent's contributions multiple times on the blog. She is not only an intellectual giant, she is also one of the most genuinely supportive researchers in political economy anyone can ever run into. Did you read the report, she is giving ALL of her prize money to support research and graduate education. She did the same thing with her FSSO Award a few years ago.

[Brad]

I think Levitt is right; it does reflect badly on him that he has not heard of Ostrom. I hope he is wrong about other economists not having heard of her though.

[Peter Boettke]

At the home page for her institute --- The Workshop in Political Theory and Policy Analysis --- they describe their work as a New Science of Governance for a New Age. And they describe their task as follows: "The betterment of humankind depends on the ability of fallible human beings to make decisions, manage resources, and govern themselves. This is the basis of democracy, and of civilization itself. It is also the basis for more than 30 years of research and inquiry at the Workshop in Political Theory and Policy Analysis at Indiana University in Bloomington.

The Workshop’s teaching and research probes the inner workings of human institutions—structures of rules used to govern people and resources, in this usage—in order to better understand what works and what does not. Institutions affect every facet of life, from public services to family and community structures to natural resources and beyond, and the Workshop’s research helps people design and adapt their institutions so that they generate better outcomes."

This is why the work is so intriguing. First, at the core is a model of man as fallible --- cognitively limited. Second, is a focus on the emergence of institutions --- not necessarily state-led institutional impositions. Third, is a focus on governance, not government.

I am seeing more and more commentators in the blogosphere getting the wrong message from Lin's work. Hopefully, the real implications of her work will dominate.

Pete

[Barkley Rosser]

I am pleased to be able to unequivocally endorse this prize for both its recipients. Ostrom (whom I have never met) was not on my radar screen for getting it (Williamson was very much so), but she is fully deserving, with Pete as well as Alex Tabarrok over at MR, giving pretty good reasons why.

I also congratulate Pete for having the good timing to have a book on her work coming out right now. I also am pleased to have been able to publish a special issue of JEBO that Pete edited that contained papers from a conference at Mason honoring her and her husband, Vincent Ostrom, in June 2005 57(2), "Polycentric Political Economy: Essays in honor of Elinor and Vincent Ostrom." She also published a paper in JEBO in October 2006 entitled "The value-added of laboratory experiments for the study of institutions and common-pool resources" in a special issue on "Experiments in Natural Resource Economics," edited by R. Arnason, F.M. Baldursson, and J.T. Sturlson, from a conference held in Iceland.

I note that Williamson is the most cited economist of all time. He also wrote the first paper ever published in JEBO back in 1980, "The organization of work," and has been on the journal's editorial board since the beginning, and since 2002 as an honorary editor.

I would note that Ostrom's ideas regarding decentralized governance cut across a lot of boundaries, methodologically, displine-wise, and also in terms of ideology. As a past president of the Public Choice Society and a hanger-out at Mercatus, she has her cred on the libertarian right in good order. However, her ideas of self-governance and self-management by small, local groups, also fits in with a certain strand of thought on the left. This is not the command centrally planned socialism strand that Austrians have long fought against on good grounds. Rather it is the originally left-libertarian-anarchist strand ("libertarian" was a word coined in France in the 1850s and was used by "leftists" until the 1950s). In particular an important part of this tradition was Proudhon, whom Marx ridiculed, and who supported cooperatives. Later arguments for self-management by workers and so on, which David Prychitko has published on, fit into this strand as well, which clearly crosses ideological boundaries.

[Peter Kurrild-Klitgaard]

Execellent post, Pete--as always.

Levitt is--perhaps with the exception of suggesting that many economists will be dissatisfied--way off here. Her work is, of course, centrally placed in political economy, and in fact--I am saying that as a political scientist--the award to her is not an indication of a watering down of the economics part of the Economics Prize but rather a sign of how influential the "economic way of thinking" has become outside economics.

[wulfmankarl]

Adam Smith shows how to fight the growing Oligarchy. Mediated by Joey Panto.
http://02e56fa.netsolhost.com/blog1/index.php/2009/10/07/adam-smith-how-we-can-fight-the-oligarch

[Greg Ransom]

Excellent and helpful post.

I also like it that she does research in the field -- like most non-molecular biologists, just to name another real branch of science.

[Bill Stepp]

I took an undergrad class in which a paper by Ostrom was assigned reading, and had followed her a bit since. I'm surprised that so many economists haven't even heard of her, but probably shouldn't be.
Rothbard deserved one for his analysis of the State in his classic book _Power and Market_, and three foundational essays "Justice and Property Rights," "The Anatomy of the State," and "War, Peace, and the State."

[Lee Kelly]

Pete,

Have you posted about her on this blog recently? I can't remember, but I have only been a regular visitor for about 6 months.

Having read a little more about Lin Ostrom, I am even more intrigued than before. I am very about the evolution of morality, rules of conduct, social norms, etc., and it seems as though Ostrom has done some relevent work.

I am about to start reading Selgin's "Good Money", but will return to Ostrom and your book afterward.

[Lisa]

Congratulations to both.

[Current]

It's interesting that on Crooked Timber they are very happy about this prize too...

http://crookedtimber.org/2009/10/12/the-ostrom-nobel/#more-13312

They say that yes, her work is Hayekian, but it is "Hayek against Hayek".

[Peter Boettke]

Current,

Only because they DON'T UNDERSTAND Hayek and instead think of Hayek as 'perfect market' person. The modern debate in philosophy, politics and economics has a lot of confused opinions circulating.

Dragos Aligica has an interesting summary of Lin's work in this regard where she contrasts her views with Smith and Hobbes, and strives to find a "third way" between market and state. http://reason.com/archives/2009/10/12/elinor-ostrom-on-the-the-marke

But so much of this discussion gets convoluted because we mistakenly contrast market and civil society. Instead we should see the market as one manifestation of civil-voluntary association. And contrast that with the coercive power of the state. Lin's common-pool resource management work is along those lines.

The challenge to modern libertarians, I would argue, comes more in the way that Lin and Vincent challenge the idea of a unified local government, but instead see polycentricity in governmental arrangments. Not only in the competition between governments (Tiebout and all that), but within the actual municipal production and distribution of public goods (say police services). I am not sure that their work here has been fully confronted.

But I am more focused on her analytical contribution to the study of self-governance. Huge mistake to not appreciate all that she has done in that field and its importance to understanding the process of economic development.

[Peter Boettke]

Bill Dennis highlights that the Fund for the Study of Spontaneous Orders actually beat the Nobel Prize committee to the punch. Lin and Vincent were the first recipients of the Funds Lifetime Achievement Award.

http://atlasnetwork.org/networknews/2009/10/12/former-fsso-lifetime-achievement-award-winner-recieves-nobel-prize-in-economics/

[Peter Boettke]

David Henderson in the WSJ provides a very useful summary of the importance of the Nobel winners research:

http://online.wsj.com/article/SB10001424052748704107204574469372956187270.html?mod=WSJ_hps_MIDDLEThirdNews

[Current]

Pete: "Only because they DON'T UNDERSTAND Hayek and instead think of Hayek as 'perfect market' person. The modern debate in philosophy, politics and economics has a lot of confused opinions circulating."

I know. I see I was writing a post telling them that while you were writing this post.

Henry Farrell obviously doesn't know all that much about this subject. Which is quite depressing.

I'll read some of Ostrom when I get a spare six months to read my backlog of books. ;)

[scineram]

This.

[scineram]

I meant to say this:
http://www.lewrockwell.com/blog/lewrw/archives/39366.html

[Adam]

I've read only a tiny fraction of L. Ostrom's work. My focus has been on the so-called common property issues. I find her work interesting, but not terribly insightful--no giant such as Hayek, Coase, North, or Williamson. I've occasionally used excerpts of her research in courses, but it wasn't well received by students.

In terms of her approach to common property, it seems overly interested in centralized solutions--those managed by a coercive power such as a tribe, village, irrigation authority, or similar 'small is beautiful' institution. Ancient village traditions can be just as coercive as the meanest police state--an hypothesis that never seemed investigated in her work. Rather, Ostrom seems to prefer a softer, rosy view of local coercive units. As far as I know, the idea that trade and market create value and capital (e.g., Hayek and de Soto) never entered her work. Finally, my reading is that her focus in always on the institutions as a moral force apart from the existence and choices of individuals.

Nevertheless, Peter's view gives me hope. I'll have to look more closely at the work cited in the blog. More hope and change. Great.

Best to all.

[rog]

One ancient tribal system worth studying is that of the Scottish clans. Originally clan lands were administered by a clan chief who took an oath to "preserve inviolate all the ancient customs of the people." It was these same clan chiefs who later conducted the Clearances - action to move tenants to the extremities of the lands whereby they eventually starved or forced to emigrate.

Originally the lands fell under the Celtic Patriarchal system, following the Norman invasion this changed to a feudal system.

Change was wrought by invasion and a force far greater than the clans.

Without security of title enforced by a sovereign property was not secure.

[Barkley Rosser]

adam,

Tribes and such may be coercive, but to call them "centralized" seems somewhat off. Let us be clear, and Ostrom is one who has shown this point, which you may not like: open access resources get overexploited in a regime of pure, Nash equilibrium, individualism. The whole point is that to manage a commons requires some sort of collective decisionmaking, and these arrangements that bring about cooperation over time in the face of prisoner's dilemma cheating generally involve some sort of punishment of cheaters, as in what the lobster gangs of Maine do to those who violate their arrangements. Some sort of coercion is necessary to pull this off.

[R. Pointer]

I was reading through the preface of Williamson's Economic Institutions of Capitalism, a book I ordered a few weeks back along with Governing the Commons**, and he cites Menger and Von Mises. I was very impressed.

As I have written elsewhere, I think this is a big poke in the eye for Max U economists. I had an email conversation with a Columbia Economist this year and he had no idea about VOC's critique of neoclassical models of inflation. As you say Dr. Boettke, NCE is void of institutional considerations (North, 1990, ad nauseam). How they can continue in this way is beyond me. And the prediction that Fama would win this year struck me as absurd.

It is too bad Mancur Olson isn't around to get the award. I think he really belongs in this cohort.

**It is too bad that I didn't place a bet on my recent book purchases. I would be very wealth! Alas, I am a poor grad student.

[Peter J. Karthak, Kathmandu, Nepal]

Where is Nepal - the research countrysite of the winner - in your long article? It's a pity to miss the name of the country which was the source of Ms Ostrom's findings and revelations, and you blew it! Poor journalism, ideed!!

[Bob Murphy]

Pete,

Not sure if you are still checking this thread, but if so, can you clarify why you said the Forbes piece was "wrong"? I skimmed it and it seemed defensible to me. Obviously neither you nor David Henderson would have described their work that way, but is there anything in the Forbes article that is factually incorrect?

(I'm not challenging you, I'm sincerely asking a question.)

[Greg Ransom]

Ostrom explicitly endorses Hayek's model of economic science and Hayek's explanatory strategy. See:

http://hayekcenter.org

[Nike Air Jordans]

Wow an interesting model. Thank you for sharing.

[irrigation systems design]

I had never heard about her until now but she sounds to be deserved member for nobel award considering pioneering work on rational choice theory and institutional analysis. Surely, she would be amazing and talented person.