Nobel Prize for Economics (based on performance, by the way)

An assessment of Ostrom and Williamson-- by David Henderson in the WSJ...

Yesterday's award of the Nobel Prize in economics to Elinor Ostrom and Oliver Williamson at first struck me as a good choice. Now I think it's a great choice. The reason is that mainstream economics has become highly mathematical and increasingly independent from reality. Many economists sit in their offices and derive proofs. Few go out and do the time-consuming work of examining the institutional structures that humans build to solve their own real-world problems. Among those few are Ms. Ostrom and Mr. Williamson.

Both draw on rich data from outside the field of economics. Ms. Ostrom draws much of hers from case studies of common-property resources and Mr. Williamson from business historians such as the late Alfred Chandler. Some have summarized their work by saying that institutions other than free markets often work well. But that statement can mislead you to conclude that government solutions are the answer. Free markets are only a subset of free institutions. A better way to sum up their work is that what Ms. Ostrom and Mr. Willamson really show is that voluntary associations work....

Economists talking about real humans and not mathematical abstractions and winning the Nobel prize for it? Good on ya, Nobel committee.

Williamson's work was largely in industrial organization, focusing on the theory of the firm and decisions to organize production within firms or markets. Ostrom's work focused on communal ownership that worked (vs. the typical "tragedy of the commons"). Not surprisingly, those that had a kind of property rights system-- and those that were managed from the bottom-up (vs. government top-down solutions) were most successful.

Congrats to both of them!