Wednesday, October 14, 2009

Elinor Ostrom - An End to Homo Economicus?

Mario Rizzo writes (13 Oct) in Wall Street Pit HERE and Here:

Elinor Ostrom and the Relevance of Economics”

In fact, I would venture the guess than most economists had not heard of her before the prize was announced yesterday morning.

Two reasons for this are that her degree is in political science and she has written for publications outside of the mainstream economics journals. Additionally, her work, by and large, lacks the high degree of mathematical formalism now so characteristic of economics.

Yet the Nobel Prize Committee has done a great service to economics and the greater social-scientific community. When a well-known economist receives the prize little is gained apart from the recognition of a job well done and perhaps some wider public recognition. I do not think that great contributions are made in any discipline because of the incentive effects of an improbable prize. However, in this case the Nobel Committee has brought extraordinary work to the attention of an economics discipline that has become excessively specialized and, perhaps increasingly irrelevant to the real world, as Paul Krugman and others have recently suggested.

Professor Ostrom’s work is highly relevant to important issues in economic development, common-pool resources, the development of social norms, and the solution of various collective action problems. Her work is also methodologically diverse. She uses experimental methods, field research, and evolutionary game theory. She is not afraid to draw on various disciplines when appropriate: economics, political science, evolutionary psychology, cultural anthropology and so forth.

“She is a very worthy intellectual descendant of Adam Smith who realized that the study of trade based on self-interest needed to be supplemented by a broader view of humankind – individuals capable of the so-called “moral sentiments” like honesty, benevolence, and loyalty, as well as the standard vices.”

“The central problem on which her employment of the notion of “thick rationality” can shed light is what she calls “social dilemmas.” These are circumstances in which interacting individuals can easily succumb to maximizing their short-term interests to the detriment of their long term interests. To return to our irrigation example, suppose farmers share the use of a creek for irrigation. They face a collective problem of organizing to clear out the fallen trees and brush from the previous winter. Each farmer would like to have the others do it. There are incentives to free-ride on the “public spiritedness” of others – however, everyone may think this way and nothing will get done. Ostrom finds that cooperation will often take place while the “thin” theory of rationality predicts that it will not. She finds that factors such as face-to-face contact (likely when there are small numbers), the equality of each farmer’s stake in the benefits of irrigation, and the ease of monitoring the farmer’s contribution to brush removal all make the likelihood of cooperation greater.”

If, like me, you are unfamiliar with the new Nobel Prize winner, Elinor Ostom’s work, you should start by reading this short piece by Mario Rizzo. It is a continuation of Adam Smith’s approach to moral philosophy and political economy.

It also rejects the sanitized neo-classical formalism, locked into abstract maths and non-human theories of rationality, but which claims “scientific” status despite the evidence that little of it applies to the real world and real humans – and when it is applied and policy conclusions are drawn from it and tried, they fail miserably, as the billions spent on development have shown from their unspecified, though visible and obvious, unintended outcomes.

From what I have read so far, Adam Smith’s legacy is safer in Elinor’s hands than almost the entire discipline of modern neo-classical economists put together.



Blogger Greg said...

Olstrom thinks she's following Hayek's model of economic science.

8:38 am  
Blogger michael webster said...

Gavin, like you I have had to scramble to find and read some of Ostrom's work.

What I have read is interesting, a focus on what makes coordinated collective action succeed or fail.

But the actors are clearly responding to incentives, focal points, and perhaps social preferences.

We aren't seeing in her work an abandonment of economic rationality, but rather a view that institutions outside of auction devices can do a good job of allocating access to common pool resources.

I think that is very important in an era in which many people argue that access to common pool resources should always be determined by the allocation of property rights and an auction.

1:12 pm  
Blogger Gavin Kennedy said...

My informed comments on Ostrom's work will have to wait until I return to Edinburgh - Amazon plus library.

I have often been limited in my support for the 'tragedy of the commons' thesis, especially as Hardin was too enthusiastic about proving the population crisis rather than the real dynamics of human groups.

My initial enthusiasm is provisional until I read her works for myself.


1:20 pm  
Blogger PrestoPundit said...

Ostrom repeatedly cites Hayek's work on social rules, local knowledge -- and on the explanatory task and strategy of social science.

Of course, Hayek saw much in common between his own conception of the explanatory problem and strategy of economics .. and that of Adam Smith.

Those who don't get the commonality usually don't get it because they get Hayek's work all wrong -- i.e. they have a deeply false picture of Hayek's work.

5:35 pm  
Blogger Gavin Kennedy said...


Thanks for the insight. I must go back top Hayek - I have several volumes of his works here in France.

Any particular one(s) I should look at?


7:10 pm  

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