The first woman to win a Nobel Prize in economics must have done something special, and she has. Interestingly – and paradoxically – her hypotheses are also hardly compatible with “mainstream” economics. All this deserves a brief introduction to her fascinating and globally significant field of research. And that is what I intend to do today.
In 1990, Elinor Ostrom wrote the book that would make her famous, Governing the Commons. In it, outrageously in the age of neoliberalism, she points to a third way to avoid the “tragedy of the commons”, as Garrett Hardin called a certain phenomenon in his influential 1968 Science article.
What is this about? It is a problem whose scope and importance cannot be overstated: What happens when a resource such as fish, fresh air, stable climate, forests, etc. is exploited by many users? All these examples have one thing in common: they are difficult or impossible to fence off, divide or otherwise prevent access to; they are so-called public goods. Because everyone uses them, and because everyone gets the maximum benefit (in the short term) by taking as much as they can, the resource soon collapses completely. And then each of the greedy short-term utility maximisers finds himself in a much worse situation than if he had held back in the first place.
This can easily be seen in the overfishing of the world’s oceans (about 75% of species are dramatically overfished and in some cases on the verge of collapse), the failed climate change conferences and many other examples. And this is exactly what economics predicts: people are rational utility maximisers or, in other words, cold-hearted, short-term thinking egoists. It then offers a solution: Privatisation, because then everyone will take optimal care of their private property. The problem is that it doesn’t work for this class of problems!
The other standard solution is: the state takes over, hires watchdogs, sets rules and quotas and punishes rule-breakers. The problem with that is that it costs a lot of money, the overseers can be bribed, and the planners who set the rules and quotas usually don’t have the same idea as the people on the ground would have if they had only been asked.
Elinor Ostrom now describes precisely this third solution: local institutions, designed, managed and monitored by the people themselves. And there are many, many examples of this around the world. Why did none of the economists want to see them? It is difficult to say, but perhaps it is a “blind spot”!
The Nobel laureate now shows in many detailed analyses that such institutions can be very successful, but that there are also many failures. Researchers (including myself) are still puzzling over why. There seems to be a basic set of good “design principles” that it is better to follow in order to build a stable, equitable, sustainable and efficient organisation of public goods, but why this sometimes works and sometimes does not is still unclear. Such design principles include clear rules, clear boundaries of the resource, small groups, successful social history of the group, local jurisdiction, etc.
Solving these problems would have global implications. We would understand why open source projects work at all (and so well!), we could plan climate change conferences to be successful; in short, we could be more sustainable and equitable in virtually all problems.
That is why this Nobel Prize in Economics is so well deserved, and will strengthen the backbone of research that seeks answers to the most pressing problems of our time.