Column : State versus market? Grow up

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: The Nobel Prize for Economics is, of course, primarily about honouring outstanding researchers and their contribution to the discipline. But very often circumstances of the real world—embedded in economics—influence the decision of who wins at what point in time. Paul Krugman’s win last year was in equal measure recognition of his original research in trade theory as well as his general scepticism of the efficiency of free markets—the prize was handed out when free markets were going through their roughest patch in decades. Similarly, George Akerlof, Michael Spence and Joseph Stiglitz who worked on market failure because of asymmetric information shared the prize in 2001, the year after the spectacular burst of the dotcom bubble. Amartya Sen had earlier won in 1998 for welfare economics (he is also a known free market sceptic), the year after the East Asian crisis and in the aftermath of the crises in Russia and Brazil.

It was quite a trend—every time free market capitalism went through a crisis anywhere, the Nobel Committee chose to award economists who had made their academic reputations questioning the efficacy of the free market.

If past trends were an indicator—and to those involved in the game of prediction they are—the winners for the 2009 award would most likely have been drawn from the fast-growing domain of behavioural economics, which more often than not, using tools from psychological sciences, reduces the outer bounds of rational behaviour by humans and by transitivity of markets. Or perhaps the winner would have come from the domain of finance, but from the sceptic, not enthusiast, wing—someone like Robert Shiller who has done much work on asset price bubbles and the collapse of supposedly efficient free markets.

In the end, it was none of these. The winners for 2009 are Elinor Ostrom—the first woman to win a Nobel in economics is ironically a professor of political science—and Oliver Williamson —a student and long time collaborator of Ronald Coase, a previous winner of the Prize (in 1991). They were cited for their work on economic governance: Ostrom for her study of the management of common resources and Williamson for his study of the firm as an institution for conflict resolution.