I was very happy to hear about Elinor Ostrom’s Nobel Prize in Economics. Her work focuses on the tragedy of the commons and collective action problems, which overlaps several of my own research interests. When Ostrom began writing in this field in the 1960s, the conventional wisdom in economics and political science was that the tragedy of the commons and other similar collective action problems could only be addressed through government intervention. Some dissenting economists (such as Ronald Coase) argued that they could often be addressed through privatization – converting common property into property owned by individuals, who would then have strong incentives not to overuse or destroy it. In a series of influential articles and books, Ostrom showed that there is a third way: often individuals can use social norms and informal institutions to manage common property resources and prevent tragedies of the commons. In many situations, Ostrom demonstrates, informal, decentralized approaches to managing common property resources are superior to government-imposed ones. The former take more account of the specialized local knowledge possessed by the people who actually use the resources and depend on them for their livelihoods.
For the best summary of Ostrom’s work, see her excellent 1990 book Governing the Commons.
Ostrom’s theories are often seen as an alternative to traditional libertarian thought, which emphasizes the importance of private property and markets. However, it actually fits well with libertarianism defined more broadly as advocacy of the superiority of private sector institutions over government. In some respects, Ostrom’s norm-based approach to dealing with tragedies of the commons is actually less dependent on government than the more traditional libertarian approach of relying on exclusive private property rights. The latter, after all, often depend on enforcement by government. Even where private property rights exist, it is often easier and cheaper to solve some collective action problems by norms rather than relying on the law. And, obviously, Ostrom’s emphasis on the importance of local knowledge is similar to the earlier work of libertarian theorist F.A. Hayek.
Not all tragedies of the commons can be solved by the kinds of mechanisms studied by Ostrom. Her research shows that such approaches usually work well only in groups with no more than a few thousand members. Beyond that point, resource usage norms become hard to enforce and free-riding difficult to suppress. Informal norms and institutions probably cannot solve nationwide collective action problems such as rational political ignorance (the focus of much of my own work), or worldwide ones such as global warming. Still, they can address a great many environmental and economic dangers that most experts once believed required government-imposed solutions.
Because Ostrom is a political scientist, her work hasn’t been as widely recognized by economists as it probably should be; this despite the fact that collective action problems are a major focus of study for modern economics. Steve Levitt writes that he had not even heard of Ostrom before she won the Nobel. However, her work has been enormously influential in political science and legal scholarship.
I’m not going to argue the question of whether Ostrom deserves the Prize more than various other candidates who are professional economists. Other people are far better qualified to judge that issue than I am. However, there is no doubt that her work is a major contribution to the study of important economic issues. Hopefully, the Nobel will make her scholarship better known in economics and other fields.
UPDATE: Paul Krugman admits that he, like Levitt, was unfamiliar with Ostrom’s work before she won the prize. But he goes on to suggest that she is deserving of the award based on her work on institutions.