With the passing of Elinor Ostrom we lose not only the sole female Nobel Laureate in Economics but also a great institutional economist. She was born in Los Angeles and is survived by her husband Vincent Ostrom, who was a leading political scientist in his own right. Together In 1973 they founded the 'Workshop in Political Theory and Policy Analysis' in Indiana University.
Her most famous work is on the problem of managing and maintaining common-pool resources, such as common (shared) land, fisheries, forests or irrigation facilities. Like public goods, common-pool resources exist when it is difficult to exclude other potential beneficiaries, but unlike public goods, common pool resources are depleted by use and hence users are put in a rivalrous position.
The so-called 'tragedy of the commons' (Hardin 1968) exists when (say) shared land is over-used and over-depleted by a community. Because usage cannot be restricted, everyone has an incentive to use the land, and it degrades through over-grazing or other excessive use. A widely-alleged solution to this problem is to establish individual property rights in the land so that use can be restricted or a rent can be charged to restrict use.
In contrast, extensive empirical studies by Ostrom (1990, 2000) showed that in practice, including in the underdeveloped world, communities typically establish effective rules for managing common-pool resources. These systems of rules typically evolve as customs or traditions, without prior overall design. These rules alleviate problems of over-use and fulfil obligations of maintenance. Her work thus pointed to a 'third way' which relied neither on central planning nor on individual property and markets. Her forensic, empirically-grounded, theoretical work led to generalised principles of institutional design of common-pool resource management systems.
She also applied her ideas to problems of political governance and climate change (Ostrom 2005, 2009, 2010). Her theoretical work on rules is of enormous importance (2005). In her last decade she became increasingly interested in how rule-systems (or institutions) evolve, publishing a paper in the Journal of Institutional Economics on this theme (Ostrom and Basurto 2011).
Ostrom's major contribution to the study of institutions is often described as a 'new institutional economics'. But if the latter is defined as the application of neoclassical economics to institutional analysis then her work ill-fits this description. And her emphasis on such factors as trust and culture puts her in profound contrast will Oliver Williamson, for example. In fact, all the work that is gathered together under the 'new institutional economics' label is highly diverse in both theoretical and policy terms, and the typical emphases on information problems places the entire field at some distance from standard neoclassical theory of the 1945-90 period and even beyond.
Furthermore, the original institutional economics was also highly diverse in both theoretical and policy terms (Hodgson 2004, Rutherford 2011). Consequently, for these and other reasons it is now difficult to draw a clear line between the 'new' and the original institutional economics (Dequech 2002).
In some respects – including her emphasis on the evolution and customary nature of rules – Ostrom’s work also resembles aspects of the contribution of Thorstein Veblen and John R. Commons. Yet however she is labelled, her contribution to social science has been gigantic. We have lost an enormously creative scholar and a warm and wonderful person.
Geoffrey M. Hodgson
University of Hertfordshire, UK
Dequech, David (2002) 'The Demarcation Between the "Old" and the "New" Institutional Economics: Recent Complications', Journal of Economic Issues, 36(2), pp. 565-72.
Hardin, Garrett (1968) 'The Tragedy of the Commons', Science, 162, pp. 1243-8.
Hodgson, Geoffrey M. (2004) The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism (London and New York: Routledge).
Ostrom, Elinor (1990) Governing the Commons: The Evolution of Institutions for Collective Action (Cambridge: Cambridge University Press).
Ostrom, Elinor (2000) 'Collective Action and the Evolution of Social Norms', Journal of Economic Perspectives, 14(3), pp. 137-58.
Ostrom, Elinor (2005) Understanding Institutional Diversity (Princeton: Princeton University Press).
Ostrom, Elinor (2009) 'A Polycentric Approach for Coping with Climate Change', World Bank Research Working Paper 5095.
Ostrom, Elinor (2010) 'Beyond Markets and States: Polycentric Governance of Complex Economic Systems', American Economic Review, 100(3), pp. 641-672.
Ostrom, Elinor and Basurto, Xavier (2011) 'Crafting analytical tools to study institutional change', Journal of Institutional Economics, 7(3), pp. 317-43.
Rutherford, Malcolm H. (2011) The Institutionalist Movement in American Economics, 1918–1947: Science and Social Control (Cambridge and New York: Cambridge University Pres.