Nobel For Econ Announced
Surprisingly, considering the committee's recent history, it is not being given to a 27-year-old Beverly Hills woman who has yet to balance her checkbook or pay off her credit cards, but hopes to in the near future; nor is it being given to the U.S. government, to encourage it to stop running at a scary-massive deficit.
No, it sounds like it actually went to two people for their accomplishments -- Elinor Ostrom and Oliver Williamson, for work on how community institutions can prevent conflict, according to a CNN piece:
Ostrom's work shows that local communities often manage common resources -- such as woods, lakes and fish stocks -- better on their own than when outside authorities impose rules, the committee said."Bureaucrats sometimes do not have the correct information, while citizens and users of resources do," she said to explain the significance of her work.
... Williamson's work examines why large corporations tend to arise -- and why they do not -- based on the cost and complexity of transactions, according to the Nobel committee.
"He has taught us to regard markets, firms, associations, agencies and even households from the perspective of their contribution to the resolution of conflict," the panel said.
This makes perfect sense. In general, the best decision-makers are those who are closest to the consequences of the decision. If some outside authority makes a bad rule, it likely only affects them a little if at all, whereas if my next door neighbor and I make a bad rule about how to manage our hypothetical shared natural resource we are much more likely to be affected.
This is why the economies of scale that come from centralized decision-making do not, in practice, result in a net increase in efficiency. That's why the Soviet Union fell and why each level of government should do as little as it can to get by.
Pseudonym at October 12, 2009 8:28 AM
I had the occasion to walk into a department store the other day. The place, a major store, looked like a ghost town (on a Saturday late afternoon). I stopped at the Estee Lauder counter and talked to the guy, about business in general and how he was doing with his sales. He told me that the Lauder people were having one promotion (the gift with purchase thingie, I think) after the next, and this was really stupid, as nobody "needs that much product" after they've just bought some, he told me. These big companies should talk to their front-line sales people. It's just amazing that they don't. They make decisions independent of how it seems to work in the real world.
Amy Alkon at October 12, 2009 10:45 AM
Navy example: In WWII, an American naval officer named Daniel Gallery was given command of a small aircraft carrier in the North Atlantic. His instructions were to operate against German U-Boats. That was it, he said. No specific instructions regarding how; tactics were up to him. His crew wound up capturing a U-boat, one of the few times that ever happened.
That said, I wonder if, during hard economic times, some companies are more likely to try more centralized management approaches in a desparate attempt to gain control. Usually a mistaken approach, except for when it's not.
old rpm daddy at October 12, 2009 12:01 PM
These big companies should talk to their front-line sales people. It's just amazing that they don't. They make decisions independent of how it seems to work in the real world.
Amy - which is why big department stores will die in favor of retail outlets that listen to their salespeople.
Crusader at October 12, 2009 5:11 PM
That U-boat (the U-505) is now on display at the Museum of Science and Industry in Chicago.
http://en.wikipedia.org/wiki/U-505
Conan the Grammarian at October 12, 2009 5:20 PM
I'm sorry, but doesn't this research fall into the "Well, duh!" category? I mean, Soviet central planning worked so well, and all ... .
Seems like the Nobel committee is stretching pretty far this year in some areas.
Jay R at October 13, 2009 11:24 AM
The various prizes are decided on by different groups.
The Swedish National Bank decides who gets the Economics prize; a committee elected by the Norwegian Parliament decides the Peace Prize.
This is one reason it's important not to let the (in)dignity of one prize reflect on the others; the hard sciences, medicine, and economics people make pretty good choices.
The peace and literature groups, not so much.
Sigivald at October 15, 2009 4:22 PM
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