A Nobel Prize for showing that freedom works.

Why Elinor Ostrom Won, by John Stossel for Reason Magazine

Pundits and politicians act as if government can solve almost any problem. At the slightest hint of trouble, the ruling class reflexively assumes that knowledgeable, wise and public-spirited government regulators are capable of riding to the rescue. This certainly is the guiding philosophy of the Obama administration.

So it is remarkable that this year’s Nobel Memorial Prize in economics was shared by Elinor Ostrom, whose life’s work demonstrates that politicians and bureaucrats are not nearly as good at solving problems as regular people. Ostrom, the first woman to win the prize (which she shared with Oliver Williamson of UC-Berkeley), is a political scientist at Indiana University.

The selection committee said that she has “challenged the conventional wisdom that common property is poorly managed and should be either regulated by central authorities or privatized. Based on numerous studies of user-managed fish stocks, pastures, woods, lakes and groundwater basins, Ostrom concludes that the outcomes are, more often than not, better than predicted by standard theories. She observes that resource-users frequently develop sophisticated mechanisms for decision-making and rule enforcement to handle conflicts”. (emphasis added)

Ostrom’s work concentrates on common-pool resources (CPR) like pastures and fisheries. Policymakers assume that such situations are plagued by free-rider problems, where all individuals have a strong incentive to use the resource to the fullest and no incentive to invest in order to enhance it. Analysts across the political spectrum theorize that only bureaucrats or owners of privatized units can efficiently manage such resources.

Few scholars actually venture into the field to see what people actually do when faced with free-rider problems. Ostrom did. It turns out that free people are not as helpless as the theorists believed.

Read more on the Reason Magazine website.