A very deserving Nobel Prize

As the World began a long and never ending debate about whether US President Obama deserved Nobel peace prize or not, the Swedish Academy announced the award of Nobel Prize in Economics to a very deserving woman from Indiana University,  Elinor Ostrom.

                                                       Elinor Ostrom.   Photograph: John Sommers  II/Reuters

She shares the award with Oliver Williamson .

She became the first woman to get the Nobel Prize in Economics and the interesting thing to note is that she is not an economist. She is a political scientist and is currently the Professor of Political Science in Indiana University in USA.

Many have termed Elinor Ostrom getting the Economics Nobel as “most unexpected” or even “radical and awesome choice”.

What is so important and significant in her work?

Most economists consider individuals ruthlessly selfish so that they eventually destroy the natural resource they commonly own or share. This is called as ‘Tragedy of Commons’

This refers to a dilemma described in an influential article by that name written by Garrett Hardin in 1968. The article describes a dilemma in which multiple individuals acting independently and solely and rationally consulting their own self-interest will ultimately destroy a shared limited resource even when it is clear that it is not in anyone’s long term interest for this to happen.

Central to Hardin’s article is an example, a hypothetical and simplified situation from medieval land tenure in Europe, of herders sharing a common parcel of land on which they are each entitled to let their cows graze. In Hardin’s example, it is in each herder’s interest to put the next (and succeeding) cows he acquires onto the land, even if the carrying capacity of the common is exceeded and it is temporarily or permanently damaged for all as a result. The herder receives all of the benefits from an additional cow, while the entire group shares the damage to the common. If all herders make this individually rational economic decision, the common will be depleted or even destroyed to the detriment of all.

So what is the solution?

Solution from the Right of political spectrum is to privatise the resource so that everyone will have ownership of small parcels of resources and treat that parcel better than when they shared it.

The Leftist’s solution is to make Government take over the resource and bring strict rules to prevent over-exploitation.

But Ostrom disagrees with both solutions.

Privatisation, especially taking over by big Corporations according to her will only increase the exploitation and will result in severe depletion of the Nature’s resources.

Governments if not environmentally sensitive or sensitive to the wishes of the people may act similarly to a big Corporation.

Ostrom’s studied how different communities in different parts of the World use forests, lakes, groundwater basins and fisheries. She showed that the commons could be an opportunity for communities themselves to manage resources.

Here is an excerpt from her paper “Beyond the tragedies of Commons

In an effort to move beyond Hardin’s classic allegory, it is important that one does not dismiss Hardin’s predictions for some Common Pool Resources. The major problem of his original analysis was that he presented “the tragedy” as a universal phenomenon. No set of users could overcome the tragedy. Thus, CPR users were trapped needing external interventions to extract them from gross overuse. Hardin’s presumption of universality is what one needs to move beyond.

Having said this, many field settings exist where Hardin is correct. Over harvesting
frequently occurs when resource users are totally anonymous, do not have a foundation of trust and reciprocity, cannot communicate, and have no established rules.

In an experimental lab, eight subjects presented with a common-pool resource problem over harvest when they do not know who is in their group, no feedback is provided on individual actions, and they cannot communicate. In fact, they over harvest more than predicted by the game theory and fit the behavior predicted by Hardin.

If the experimental subjects are enabled to sit in a circle talking about the puzzle in a
face-to-face group, they usually develop trust and reciprocity. Within a few rounds, they reduce over harvesting substantially and do very well. In traditional, noncooperative game theory, communication is not supposed to improve the outcomes obtained, but many groups solve the problem of over harvesting after engaging in face-to-face communication.

In the above paper she writes extensively about her studies in fishing communities of Mexico and shows how some of them where able to self organise and successfully sustain a pool of natural resources.

Kevin Gallagher writes about her works in The Guardian;

“In her classic work Governing the Commons: The Evolution of Institutions for Collective Action, Ostrom shows that under certain conditions, when communities are given the right to self-organise they can democratically govern themselves to preserve the environment.

At the policy level, Ostrom’s findings give credence to the many indigenous and peasant movements across the developing world where people are trying to govern the land they have managed for centuries but run into conflict with governments and global corporations.

Some economists on the frontier of their discipline have started to use Ostrom’s insights in their work. In their recent book Reclaiming Nature: Environmental Justice and Ecological Restoration, James Boyce, Liz Stanton and Sunita Narain, show how communities in Brazil, India, West Africa and even in the United States have managed their resources in a sustainable manner when given their rightful access to their assets”

The Nobel Prize also acknowledges her methodology of work. Unlike other economists who seldom leave the black board/laptop Ostrom did spend a lot of time in the field collecting data, conducting case studies and studying the behaviour of different communities. She also devised many experimental games both in the lab and on the field.

This is what the Nobel Prize committee said about her:

“Elinor Ostrom has challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes, and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts of interest, and she characterizes the rules that promote success-ful outcomes.”

She is considered as a ‘brilliant scholar, good communicator, great teacher and a generous colleague’.

Let us hope that this award of Nobel Prize to Ostrom will trigger more research by economists in this field of human and community behaviour. Such a change in approach advocated by Ostrom may help us to preserve fast depleting natural resources.

To know more about her work click here.


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