Congratulations to Elinor Ostrom, the first woman to win the Nobel Prize in Economics (seriously, what century is it?). This year's Prize is also a recognition that 21st century economics will be about sharing the Commons.
Ostrom's 1990 book Governing the Commons reframed the infamous "Tragedy of the Commons," and concluded that people can solve their own problems. Prior to Ostrom, the overuse of a shared resource such as open grazing lands (as popularized by a 1968 essay by Garrett Hardin), was seen as inevitable, and could only be addressed with either government intervention or the invisible hand of the free market. This simplistic approach fit nicely into America's polarized ideological divide: red-state or blue-state, liberal or conservative, Democrat or Republican, Coke or Pepsi, McDonald's or Burger King, et al or etc.
But Ostrom showed that it overlooked an important player: the people who live there and use the resource. As the winner of this year's Nobel Peace Prize said in a 2004 speech, "there's not a liberal America and a conservative America; there's the United States of America." Rather than socializing grazing land with government intervention, or privatizing the land and letting the market rule, Ostrom's book argues that resource users can create local rules and institutions to manage the resource while preserving shared access.
Her lessons can apply to a variety of Common Pool Resources including fisheries, groundwater, water in irrigation canals, the ozone layer, public forests, the oceans, and biodiversity.
And Ostrom's work could even help save the biggest commons of all: climate. In about 50 days, the Copenhagen climate conference will begin, and the world's countries will likely behave competitively in a zero-sum game. When one country says, I'll reduce 5%, the next says, I'll reduce 4%, followed by the next offering 3%. Each country knows that every gallon of gasoline they give up will be used by their competitor to beat them in the world economic race. The tragedy of Copenhagen.
A program promoted by the Environmental Defense Fund for depleted fisheries shows how Ostrom's work can be used to save Copenhagen. The "Catch-Share" program distributes "individual fishing quotas" to each fisherman, community or fishery association. Fishermen dislike constraining government rules, but support this tradable permit system. The Pacific Fishery Management Council plans to institute a Catch-Share program in order to encourage cooperation, rather than competition, among fishermen working the cod, whiting, rockfish, flounder and sole fisheries from Morro Bay on California's Central Coast to Puget Sound in Washington state.
A similar system geared to address climate change is called "Cap & Share." Fossil fuel producers are required to purchase a limited number of emission permits. However, instead of giving or selling the permits to companies, the permits are distributed as "shares" to households on an equal per capita basis. The point of regulation remains upstream, and fossil fuel producers and importers are required to purchase the shares from people. As people sell their shares to the upstream companies, the companies raise fuel prices, but return the value of the permits back to households. Cap & Dividend, promoted by author Peter Barnes, achieves a similar result through a government auction of permits to companies, returning the proceeds to households as a per capita dividend. It's a fair way to help households, and it could form the basis of the next international climate treaty.
Al Gore and the IPCC won the Nobel Peace Prize in 2007 for alerting the world to the problem of global warming. This year Elinor Ostrom's Nobel Prize in Economics is part of the solution.