John Gowdy and Richard Norgaard
“Economic transactions take place not only in markets, but also within firms, associations, households and agencies. Whereas economic theory has comprehensively illuminated the virtues and limitations of markets, it has traditionally paid less attention to other institutional arrangements. The research of Elinor Ostrom and Oliver Williamson demonstrates that economic analysis can shed light on most forms of social organization.”
Press Release of the Royal Swedish Academy of Sciences, October 12, 2009
“Paradigm change” is one of the most overused phrases in academic discourse. But it is now undeniable that dramatic changes are happening in the field of economics. In one sense this year’s Nobel Prize in Economics, or more formally the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, is no anomaly. The majority of winners in the last ten years rejects many of the basic tenets of neoclassical welfare economics. Behavioral economics is well represented in the work of recent Nobel Prize winners and seems to be moving toward a dominant position in explanations of individual and firm behavior. Most economists now recognize that the social and institutional context of economic activity has been neglected by standard theory (Akerlof 2007). In another sense the award of the prize to Elinor Ostrom is a break with the past because it is the first recognition by the Nobel committee that the biophysical world is the ultimate context for all economic activity. Ostrom’s work is grounded in the basic premise of ecological economics, that the economy is a subset of human society and of the natural world. In a recent interview Ostrom (2008) stressed this point: “[T]hose of us who do research on how humans use and abuse resources, have been trying to develop a better way of thinking about the ecological side, or biophysical side, as well as the social side, so that we’re not looking at this just as social scientists or just as biophysical scientists.”
The importance of Ostrom’s work is not only that it is a confirmation of the premises of ecological economics, it also validates the importance of local institutions in studying coupled human and natural systems. The world’s poorest will face the brunt of the damaging effects of rapid climate change in the coming decades. Many if not most of the world’s poor live in regions where national governments are ineffective and markets are limited. Understanding and enhancing the ability of local institutions to adapt to changing environmental conditions will be the key to managing much of the transition to a warmer and more unpredictable world.
Ecological economists long have cherished Elinor Ostrom’s powerful intellect and constructive camaraderie. She serves on the editorial board of Ecological Economics, and has published in Ecological Economics, participated in many ecological economics meetings, and co-authored with Daniel Bromley, Robert Costanza, Carl Folke, Marco Jannsen, Richard Norgaard, Stephen Schneider, and surely many others who contribute to our broad field. This is a Nobel Prize we can be proud of.
Akerlof, G., 2007. The missing motivation in macroeconomics. American Economic Review 97: 5-36.
Ostrom, E., 2008. Interview with Joe Cone “Communicating Climate Change” October 30