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Ostrom Does What Economists Should Do

Posted By Don Boudreaux On October 12, 2009 @ 1:37 pm In Complexity & Emergence,Economics | Comments Disabled

Here’s Steve Levitt on today’s Nobel award in Economics [1]:

What’s interesting is that in the ensuing 15 years, it seems to me that economists have talked less and less about [Oliver] Williamson’s research, at least in the circles in which I run. I suspect most assistant professors of economics have barely heard of him. Yet I suspect the older generation of economists will applaud this choice. 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. –Steven D. Levitt, University of Chicago [2]

I believe that Levitt is correct about Williamson’s work: sadly, too many young economists are unfamiliar with it.

Levitt’s comment about Ostrom is also unsurprising — but nevertheless distressing given the reality that it reflects about the narrowness of the economics profession.  Many economists (including Levitt [3]!) will insist that Ostrom isn’t an economist, and suggest that the Nobel prize in this discipline is now moving toward being awarded for social science and not, more narrowly, economics.

This attitude is regrettable.

As long ago as 1963, in his Presidential address to the Southern Economic Association — an address entitled “What Should Economist Do?” — 1986 Nobel economics laureate Jim Buchanan [4] very clearly said that work of the sort that Lin Ostrom does is most emphatically part of what economists should do.  Here’s Buchanan:

The motivation for individuals to engage in trade, the source of the propensity [to "truck, barter and exchange" - Adam Smith (1776)], is surely that of “efficiency,” defined in the personal sense of moving from less preferred to more preferred positions, and doing so under mutually acceptable terms.  An “inefficient” institution, one that produces largely “inefficient” results, cannot, by the nature of man, survive until and unless coercion is introduced to prevent the emergence of alternative arrangements.

Let me illustrate this point and, at the same time, indicate the extension of the approach I am suggesting by referring to a familiar and simple example.  Suppose that the local swamp requires draining to eliminate or reduce mosquito breeding.  Let us postulate that no single citizen in the community has sufficient incentive to finance the full costs of this essentially indivisible operation.  Defined in the orthodox, narrow way, the “market” fails; bilateral behavior of buyers and sellers does not remove the nuisance.  “Inefficiency” presumably results.  This is, however, surely an overly restricted conception of market behavior.  If the market institutions, defined so narrowly, will not work, they will not meet individual objectives.  Individual citizens will be led, because of the same propensity, to search voluntarily for more inclusive trading or exchange arrangements.  A more complex institution may emerge to drain the swamp.  The task of the economist includes the study of all such cooperative trading arrangements which become merely extensions of markets more restrictively defined.

Here’s a longer blog-post, from a few months back, on this matter [5].

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URLs in this post:

[1] Here’s Steve Levitt on today’s Nobel award in Economics: http://blogs.wsj.com/economics/2009/10/12/economists-react-nobel-award-sends-message-about-economics/

[2] University of Chicago: http://freakonomics.blogs.nytimes.com/2009/10/12/what-this-years-nobel-prize-in-economics-says-about-the-nobel-prize-in-economics/

[3] including Levitt: http://economix.blogs.nytimes.com/2009/10/12/reactions-to-the-nobel-prize-in-economics/

[4] Jim Buchanan: http://www.econlib.org/library/Enc/bios/Buchanan.html

[5] Here’s a longer blog-post, from a few months back, on this matter: http://cafehayek.com/2009/07/markets-dont-work-in-health-care.html

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