Nobel Economics Prize 2009

On Monday October 12 Elinor Ostrom was one of 2 winners of the 2009 Nobel Prize in Economics. The Wall Street Journal ran a brief article on both winners and cited her work as:

Ms. Ostrom’s work challenged the view that when people share a finite resource, they will end up destroying it — what is known as the tragedy of the commons. That view argues that resources that are important for the common good need to be highly regulated or privatized.

It is easy to see why this might be so. The Wikipedia article uses the example of a common grazing area for sheep that are owned by several different herders. Left to their own devices (the argument goes) the herders collectively will add more sheep than the land can support because a herder gets 100% of the profit from an additional sheep while only feeling part of the pain from overgrazing caused by that extra sheep. (The pain of overgrazing is shared with the other herders.) It’s this imbalance, 100% of the gain while only part of the pain that leads economists to the conclusion that use of the commons will devolve into tragedy unless steps are taken.

While this is an idealized situation, there are many other similar examples. Commercial ocean fishing is one where the commons are the fish stock and the herders here would be the individual fishermen or boat owners. Water use, especially ground water where the underground aquifer may run underneath many different pieces of property is another. Pollution is a third.

The classic solutions, privatization or regulation, are on opposite ends of the political spectrum. Regulation is the classical liberal response while private ownership is the classical conservative response. Either could be applied successfully to the sheep herder example above. The commons could be divided up and sold to each shepherd or each shepherd could be restricted to a quota of sheep, but in many situations one of these 2 extremes is just not feasible. It’s not feasible to privatize the oceans for example.

The WSJ article continues by describing the inspiration for Ms Ostrom’s research. She found that water management in Southern California in the 1960s was on its way toward becoming a tragedy of the commons, but was both able to avoid this and able to avoid becoming highly regulated or privatized. Since “commons” type problems exist in many different forms she wondered if other such systems for dealing with them spontaneously arose without government oversight or privatization. Turns out it does.

Ms Ostrom’s work is encouraging for two main reasons. One is that she’s shown that there are more ways than just the 2 classic approaches toward solving this problem. The other is that she’s shown this from studying real-world examples. Both features are encouraging because it gives us hope that the world’s problems can have more solutions than we might imagine and that those solutions can be understood by (or at least implemented by) non-experts.

If we can get our governmental representatives out of their ideological bunkers and start talking to each other perhaps they too can discover these additional ways to solve our problems.

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