Ostrom, Williamson, and Sociology

I don’t know if people are realizing it yet, but the awarding of this year’s Nobel Prize Sveriges Riksbank Prize in Economics in Memorial of Alfred Nobel to Ostrom and Williamson is the best thing that could happen to sociology outside of Granovetter taking home the prize. As Gore, Krugman, and Obama’s recent prizes indicate, the Nobel committee has a habit of making awards based on current events. Given the current economic problems facing the world, I was sure that it would go to someone who does macro or financial economics. That would have been fine and dandy for Mitchel Abolafia or the folks over at the Socializing Finance blog, but the applications to sociology in general would be extremely limited. Instead, the vindication of the New Institutional Economics (NIE) School) gives sociologists a chance to get in on the action.

Williamson’s work on the firm follows that of his teacher (and previous Nobel Laureate) Ronald Coase. Before these guys, the firm was basically the black hole of economics. For starters, no one could explain why they existed in the first place if markets are sooo efficient. Secondly, after just “assuming” them into existence, they were treated as magically devices where inputs went in and outputs came out. This is what the neoclassical firm looks like. Economists couldn’t explain the simply idea of what firms do. Williamson argued sometimes market transaction costs were too high and it was more efficient to use firms were an authority could avoid haggling and holdouts. Another important concept was asset specificity where sometimes there’s just not a market for every product or services, so it’s easier to do it in-house. Steel can sell easily on the open market while steel frames for Honda Accords don’t have much use except for making Honda Accords. 

Ostrom’s work is even cooler (and more sociological) in my opinion. Elinor (along with her husband) is the founder of what is called the Bloomington School of political economy. Prior to their work, economists responded in two ways to the tragedy of the commons. You could either privatize that resources or use a whole lot of top-down government regulation. Ostrom challenged both views and found a third meso-level solution. Using ethnographic case studies (!), she found that complex rules often arose among small groups to regulate use and upkeep of the commons.

You can read more about their work here. The important point is that both individuals take institutional settings into account. Although Granovetter critiqued Williamson in his most famous article, the basic idea is there. What blows my mind even more is the fact that Ostrom relies heavily on ethnographic work and still took home the prize. It’s good news all around!

• Josh McCabe