Unlike a certain other Nobel Prize, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel actually requires evidence of substantial achievement. Mere aspirations and lofty rhetoric count for nothing. This year’s Nobel Prize in Economics has been given to two economists, Elinor Ostrom and Oliver Williamson, who have deepened our understanding of economic governance. More specifically, Ostrom and Williamson have shown how it is possible for firms and other communities to facilitate economic efficiency from “within.” In this sense, they follow in the footsteps of another Nobel laureate, Ronald Coase, whose groundbreaking 1937 article, “The Nature of the Firm,” did so much to establish the idea that businesses reduce transaction costs.
We live in an age when many are (rightly) questioning the obsession of mainstream economics with mathematics and econometrics, and also blaming mainstream economists for aspects of the 2008 meltdown. The Nobel committee awarded two scholars whose research doesn’t fit entirely within that mainstream mold — two scholars whose focus has been on the development of rules within groups and communities (including large corporations) that allow for conflict resolution and efficiency gains in ways that are often far more sophisticated than externally imposed state regulation.
– Samuel Gregg is director of research at the Acton Institute.