orgtheory.net

of cows and collective action, ostrom wins a nobel

Elinor Ostrom has won the Nobel Prize in Economics.  Boo rah!

For a lot of orgTheory readers, Oliver Williamson’s win will be the more exciting and relevant of this year’s laureates.  Oliver Williamson is really one of us; many orgTheorists find his work compelling or at least a useful foil.  But I’ll let others comment on Williamson because, for my money, the questions and topics that Ostrom work on are as (if not more) relevant and compelling to my understanding of organizations and of organization theory.

Sometimes it is the quality of the questions one asks — more, perhaps, even than the answer one gives — that makes for a great thinker.  To some degree, I think this applies to Ostrom.  In the end, I find her answers somehow incomplete.  But, the questions she asks as she breaks down the larger puzzle are compelling.

CowsonthecommonsHer fundamental question is this: in a world of abundant but rapidly depletable resources, where individuals have incentives for survival that, if acted on, would undermine the long-term viability of the resources on which they depend, how does coordination and cooperation emerge? That is, she’s interested in the Tragedy of the Commons.  The term derives from the fact that farmers with access to the local grazing land (The Commons) have an incentive to feed their cattle as much as possible.  But if all farmers fed their cattle as much as possible it would rapidly deplete the grass leading all of their cattle to suffer.  There are two prevailing answers to that dillema: (1) may the best farmer win (which would mean the commons would no longer be a commons) or (2) institute some set of rules and enforcement mechanisms to govern the behavior of farmers.  Obviously, the second often wins out.  The question is how.

Her conclusion: it’s complex.  There is no silver bullet (which makes it all the more surprising that the Nobel committee has decided to honor her work.  Economists, I’ve noticed, put a lot of value on “elegance”; Ostrom is a strong writer, but elegant… not so much).  There are a series of mechanisms that come into play to keep good order and that, if harnessed and understood, can lead to behavior that sustains survival.

Here’s the kicker (and what makes it sociological): She finds that coordination happens through self-organization and local (very local) governance.  There is a meso level — between the individual and the grand institutional structures of society — that is big enough to bite off a significant chunk of population, but not so big so as to transcend the interpersonal. The only way that self-organizing can really overcome collective action problems, in her view, is to go small.  It is like a fractal theory of economics: to build a stable, strong macro economy, you need to reproduce the structures of society over and over and in smaller and smaller scale down to the smallest units possible.

In other words, Ostrom discovered organization, through the back door of economics as it were.

Of course she did.  How could she have avoided it?  Like all great empiricists, Ostrom has never been satisfied with numbers and formulas as a means of understanding the world.  She is interested in water management, so she goes to Nepal to study water use.  She is interested in fisheries, so she goes to Maine to talk to fishermen.  She is interested in sanctioning behavior, so she runs a lab experiment. And what one finds when one does that is that organizations are the fundamental units of society.  Her work is as influenced by the stories and observations of the ways people self-organize as it is by any one theory.  It is in the productive dialogue between observation and theory that her insights emerge.

But those insights… at base, they are sociological.  Whats are the keys to self-organization and governance?  Trust.  Reciprocity.  Closure.  Density.  Social Capital.  She won the economics prize because, apparently, those insights are novel… to economists.

And there’s the rub.  Ostrom is not in the mainstream of economics.  And its important that the prize should go to people with diverse views.  Her work is particularly compelling.  But it is as compelling as Granovetter’s.  Or Ron Burt’s.  Or Woody Powell’s.  Or Paul DiMaggio’s.  Or Chuck Sabel’s.  Or Dick Scott’s.  Or Art Stinchcombe’s.  Or Harrison White’s.  She draws on each of their insights to arrive at her own.  Yet none of those people are eligible for this prize.  Its too bad. The world is a big complicated place and there are a lot of different perspectives that can be brought to bear on understanding it better.  Ostrom is a good choice.  But there is an untapped pool of thinkers who’s voices could stand being elevated.  One day…

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Written by seansafford

October 12, 2009 at 1:23 pm

24 Responses

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  1. It’s worth noting that (roughly) Garrett Hardin is to Ostrom like Coase is to Williamson.

    tf

    October 12, 2009 at 1:36 pm

  2. Question:

    Will the “Analytical Narrative” become more central to mainstream economics (and sociology) following these two being awarded?

    Brian Pitt

    October 12, 2009 at 1:59 pm

  3. Interestingly (or perhaps predictably), some economists over at Cheap Talk say they have no idea who Ostrom is.

    Trey

    October 12, 2009 at 2:00 pm

  4. @Brian. Maybe, but Ostrom is not just an analytical narrator. She’s eclectic. Draws largely on game theory, but draws on a wider range of theories to supplement. She does experiments as well as field analysis. She’s mainly concerned with breaking questions down and answering them regardless of what route in she takes (and often, she takes multiple routes). Its inspirational, for sure.

    @teppo: agreed. Though, in both cases the questions predate even Hardin and Coase… I’ll agree though that Ostrom and Williamson didn’t ask the fundamental questions they seek answers to. But they are the best at breaking those more fundamental questions down into useful pieces to analyze. Thats worth something.

    seansafford

    October 12, 2009 at 2:18 pm

  5. Nice post Sean. For what it’s worth, I think the prizes this year are validation that the committee is willing to give the prize to people outside of mainstream economics and to people in other disciplines. Ostrom, after all, is trained in political science. If Ostrom can win, then White, Granovetter, or anyone in social science with a compelling idea is eligible.

    brayden

    October 12, 2009 at 2:27 pm

  6. I mostly agree. I think it moves in the direction of really broadening the Prize to encompass social scientists broadly.

    But Ostrom does speak, basically, in the language of economics. She’s rat choice to begin with. More importantly, she plays in their pig pen.

    But I hope you are right. I know that there have been concerted efforts to get the committee to move into new social scientific territory. These wins definitely move us closer to what I think is the ideal.

    seansafford

    October 12, 2009 at 2:30 pm

  7. She’s very good (though, like Williamson, pretty blatantly derivative), but I would love to see Harrison White get a Nobel. That would make people’s heads explode (particularly if they try to pick up Identity and Control). He’s arguably the most analytically and theoretically rigorous scholar in the social sciences today. And he has legions of students who propagate the gospel. Maybe a Granovetter/White double combo?

    Random

    October 12, 2009 at 2:31 pm

  8. You aren’t the first to suggest it. The Nobel process is murky from the outside. But once you open it up, its pretty mundane: people are nominated, there are deliberations and politicking goes on. For White or Granovetter or any other economic sociologist to win will require a concerted effort and lobbying. This all happens behind the scenes, but I have it on good authority that there are people actively working to make that happen one day. I hope they succeed. It would make all of our lives easier (professionally speaking).

    seansafford

    October 12, 2009 at 2:42 pm

  9. Sean: I agree — no question, and the commons stuff even goes back to the Greeks, etc (and, even Ardi may have been familiar with the commons problem). Just pointing out predecessors.

    tf

    October 12, 2009 at 2:52 pm

  10. Boorah for breaking down the artifical barriers between fields.

    I view this award as a coup for proponents of systems theory / complex adaptive systems. Many are commenting on how Williamson’s and Ostrom’s ideas have not produced many models. That’s because the models are nonlinear and complex — i.e., hard.

    Ostrom, in particular, is somebody who I associate with the “rational irrationality” approach to understanding market failure. She has never confused the rational hypothesis with a hypothesis of psychology.

    Michael F. Martin

    October 12, 2009 at 4:50 pm

  11. I liked Krugman’s reaction to Ostrom getting the prize:

    I wasn’t familiar with Ostrom’s work, but even a quick scan shows why she shared the prize: if the goal is to understand the creation of economic institutions, it’s crucial to be aware that there is more variety in institutions, a wider range of strategies that work, than simply the binary divide between individuals and firms.

    True, Ostrom points out the possibility for diverse organizational forms. I bet Jerry approves.

    brayden

    October 12, 2009 at 5:27 pm

  12. Fantastic choice. I saw her live on the webcast this morning. I had heard of her and her work but had not read it.

    It looks like sociologists and org theorists should read her. She talks about the importance of norms a subject that is often missing from organization theory, and even more from sociology.

    The aversion to Parsons with his emphasis on norms and values led to an aversion to norms in sociology as a mode of explanation. Normative isomorphism is part of our toolkit of concepts but most of the use of it is more structural (i.e. ties to professions) than truly normative.

    Willie

    October 12, 2009 at 5:57 pm

  13. [...] is encouraging. It’s clear that this is a good prize. You should definitely read Teppo and Sean’s informative responses. I’ll take a moment to also congratulate my colleague Lin Ostrom for [...]

  14. [...] Sean Safford has written a nice entry on her research from a sociological perspective, and Peter Boettke has done the same taking an Austrian economics angle. Here is a short video of Ostrom explaining some of her key ideas: [...]

  15. I just wonder what Ostrom found is related to the new left ideal of participatory democracy, which emphasizes local cooperation instead of using strong gov’t force or market forces.

    passerby

    October 13, 2009 at 1:30 am

  16. I mean is it likely that the leftists will cite her results as well as her recognition by the Nobel committee to straighten their rhetorics or persuasiveness towards their ideal?

    passerby

    October 13, 2009 at 8:57 am

  17. [...] as Sean Safford at orgtheory states, Ostrom’s main conclusion for governing traditional commons is “that coordination [...]

  18. I’ve found it interesting to note that folks from both the left and the right have, at different times, embraced the idea of local governance and/or embeddedness as their own.

    And I do mean embeddedness as in Granovetter and Polanyi. This would make for an interesting blog discussion on its own: the politics of the embeddedness idea. Polanyi, for one, was writing in reaction to the rise of national socialism in Germany and was asserting — contra the forerunners of modern price theory — that pure markets needed to be subordinated (and subsumed within) webs of social interaction.

    I suspect (but do not know) that Ostrom comes at it from the opposite perspective. I don’t actually know her politics. However, I have seen her frame some of her work as finding middle ground (a third way? yes, to some degree) between a totalitarian-leftist approach which concentrates on nationalization of pooled resources on the one hand and a pure market approach which concentrates on privatization of pooled resources on the other. She treats them as equally onerous straw men. I see a good deal of her work pointing toward the idea that “embeddedness” provides the solution to collective action problems that might otherwise be expected to undermine access to pooled resources.

    Its worth noting too that Williamson goes down that road in his later work as well. What is the answer to rent seeking with guile? In a word: embeddedness.

    Anyhow, in the end, I think Ostrom’s work is hard to pin down politically.

    seansafford

    October 13, 2009 at 10:32 am

  19. Yes. It is true that I have heard economists framing her work the opposite way, claiming that the gov’t is not a good solution and voluntary cooperation is the way out. This view echoes with the one of Coase. (BTW, economists generally think market is also a way of voluntary cooperation.)

    But I wonder, even if we know some traditional arrangements works in the form of local cooperation, can it be reproduced to resolve current problems? Say, can the institution in Mongolia be reproduced to improve the grasslands in China and Russia?

    passerby

    October 13, 2009 at 12:10 pm

  20. @passerby: economists do think of markets as voluntary cooperation and I don’t think Ostrom disagrees. She’s honed in on what she sees as a particularly vexing market failure — the Tragedy of the Commons — and found that the failure is, in fact, overcome quite a lot. Then she spent a career trying to unpack how.

    As for reproduction, she doesn’t really go there. Her method is more to go and look at lots and lots (and lots) of examples of this kind of cooperation and how it differs — differs, systematically — across the cases she finds. Then she looks for the parameters: is the resource fixed or mobile? Are behaviors observable or not? Is there a possibility of third party enforcement, etc.

    Notice something: that comes pretty close to Williamson. What is the difference between rent seeking with guile and the farmer who over-grazes the land to beef up his own cow at the expense of the rest of the community? Not a lot. In the end, the real difference between the two is that Ostrom sees “organization” as an organic process that emerges out of circumstances and history. Williamson is much more inclined toward “social engineering” within the context of formal organizations (e.g., determining the boundaries of the firm) based on a variety of observable parameters. To be reductive: she sees organization, he sees organizations; she is bottom up, he is more or less top down.

    And that sort of answers your question. I don’t think she really goes in for “replication” as a strategy. She does try to look at the circumstances (e.g., the nature of the resource to be pooled; the nature of the population that needs to share the resource) and figure out how to make the process of self-organization work better.

    @Willie: sorry I didn’t respond to your comment earlier. The point about norms — true norms, not just structural constraint — is an important one for sure. What’s remarkable is that she arrives at it from a theoretical base in game theory. It’s kind of like Einstein deciding there must be a god because there remain mysteries of the universe that science can’t quite reach.

    seansafford

    October 13, 2009 at 3:14 pm

  21. It seems Ostrom’s methodology and mentality are rather different from mainstream economists. Economists tend to think in terms of similarities (economic forces) and how they can lead us to solve the future problems (prediction and policy implications). Case studies without overall statistical analysis is very rare.

    passerby

    October 13, 2009 at 3:50 pm

  22. Just to vent/pose a question: What’s the deal with economists (Krugman, Levitt) not having a clue who Ostrom is? I know it’s a tight discipline and all, and its hardly a shock that most don’t bother to read the interdisciplinary stuff going on around them. But come on.

    It’s this sort of thing that makes me fear that economic sociology’s engagement with economics can only end in frustration.

    Tim Bartley

    October 14, 2009 at 8:15 pm

  23. Tim,

    Let me answer your question with a picture rather than words:

    http://well-formed.eigenfactor.org/radial.html

    See how other fields are connected? Now look at economics.

    Michael F. Martin

    October 14, 2009 at 8:18 pm

  24. Of course I’d heard of Ostrom being an ecological economist who started out in geography but I haven’t heard of any of the other people you mention here… Ostrom was a surprise pick for the Nobel Prize. I can’t imagine any of these other people winning but of course I could be wrong.

    David

    October 17, 2009 at 3:53 am


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