Excellent choices. Congratulations to Elinor Ostrom and Oliver Williamson in a prize for economic governance, the former for the commons and the latter for the boundaries of the firm! A prize aimed at the economics of institutions and governance, the theory of the firm, and work that has been important for law and economics generally is a wonderful development. However, I will admit a non-trivial amount of disappointment that the prize for economic governance of institutions was not shared by any of the UCLA trio Alchian, Demsetz or Klein, who contributed a significant amount to the literature on the boundaries of the firm, asset specificity, and transaction costs.
Alex Tabarrok has helpful summaries on Ostrom and Williamson.
I also note that, per this comment, Geoff owes me lunch at Five Guys.
UPDATE: Does anybody else get the impression that the Nobel Committee is laboring to attach a preference for regulation over laissez-faire freedom of contract in selecting organization form spin to Williamson’s contributions? For example:
According to Williamson’s theory, large private corporations exist primarily because they are efficient. They are established because they make owners, workers, suppliers, and customers better off than they would be under alternative institutional arrangements. When corporations fail to deliver efficiency gains, their existence will be called in question.Large corporations may of course abuse their power. They may for instance participate in undesirable political lobbying and exhibit anticompetitive behavior. However, according to Williamson’s analysis, it is advisable to regulate such behavior directly rather than through policies that limit the size of corporations.
UPDATE 2: Here’s John Nye on the prize winners. Worth reading.
UPDATE 3: Tyler Cowen points out that the the prize is a nod toward NIE and Law and Economics. Agreed with respect to NIE. In fact, I think that one of the big advantages of the prize could be that it draws more attention to the NIE approach in law and economics. I would argue Williamson’s contributions (I’d lump in Alchian and Klein with this group but not Demsetz, who is fairly well integrated into the law and economics scene in property and antitrust) are underappreciated in law and economics. This is a point I make in discussion Ben Klein’s contributions (also well known for his work on the link between asset specificity and vertical integration with Alchian and on his own and probably the closet substitute to Williamson in the literature) to law and economics. Some very influential (and very good) papers in L&E claim that the discipline has been unable to produce models that explain real world contract law, in part, because principal-agent models of contracting and the standard approach predicts terms much more complex than what we see in the real world. My response in the essay is that the L&E of contracts has been too heavy on modern IO theory and too light on Williamson and Klein. Perhaps the prize will bring this NIE/ transaction cost economics approach back to the forefront. That would be a wonderful development for law and economics.