I was shocked but delighted to learn that Elinor Ostrom has won the 2009 Nobel Prize in economics. Elinor Ostrom defies neat categorisation. She has a faculty position and an education in Political Science, and her use of fieldwork to examine local culture marks her as a social anthropologist. But although she is multidisciplinary, she is an economist.

She studies how rational individuals generate institutions that allow them to pursue their goals. She places voluntary human interaction within the context of social cooperation, to show how complex solutions can spontaneously emerge. This is the economics of Adam Smith, and a refreshing reminder that the big questions of the social sciences can still draw novel and insightful answers.

Ostrom’s most famous work, Governing the Commons, looks at the challenges posed by collective action. She identified “common pool resources” as a particular type of public good – ones that are costly to exclude people from consuming (non-excludable), but where one person’s depletion directly impinges on others (rivalrous). The typical economist’s solution is privatisation, as even English poet George Crabbe acknowledged,

“The public good must be a private care

None all they may have, but all a share:

So we must freedom with restraint enjoy,

What crowds possess they will unchecked destroy.”

Yet Ostrom showed how pure market institutions are not the only way that people can manage common resources, by conducting ethnographic studies across the world.

She demonstrated, for example, how Nepalese farmers strike up inventive arrangements that ensure the maintenance of water irrigation systems, based firmly in communitarian norms and reciprocity. But instead of vindicating government, she also showed how well intentioned development projects can cause the breakdown of these relationships by altering the incentives for cooperation. Indeed, Ostrom’s work leads to a subtle but important lesson: the key to peaceful coexistence and prosperity lies in institutional diversity that permits learning.