UC Berkeley professor Oliver E. Williamson was awarded the 2009 Nobel Prize in Economics Monday, Oct. 5, along with Indiana University professor Elinor Ostrom for their work in organizational economics.
Williamson’s award brings the total number of economics Nobels for UC Berkeley to five—with three being awarded in the last nine years—and its overall Nobel tally to 21.
Williamson is the Edgar F. Kaiser Professor Emeritus of Business, Economics, and Law at Berkeley, and a major contributor in the multi-disciplinary field of transaction cost economics.
Ostrom is the Arthur F. Bentley professor of political science and professor of public and environmental affairs at Indiana University. She is the first woman to win the Nobel Prize in Economics.
Appearing at a 10 a.m. press conference at the Alumni House on the Berkeley campus Monday, Williamson said he had been awakened by his son who handed him the phone at 3:30 a.m. saying, “I think this is the call.”
The Economic Sciences Prize Committee of the Royal Swedish Academy of Sciences cited Williamson “for his analysis of economic governance, especially the boundaries of the firm.”
The prize committee said Williamson had been awarded the Nobel for “developing a theory in which business firms serve as structures for conflict resolution,” focusing on the problem of regulating transactions that were not covered by detailed contracts or legal rules, arguing that markets and firms should be viewed as alternative governance structures that have different ways of resolving conflicts of interest.
The Nobel committee cited Indiana University professor Ostrom “for her analysis of economic governance, especially the commons.”
“I am lucky,” said Williamson, to applause from his colleagues.
Williamson first joined UC Berkeley as an assistant professor in economics in 1963, leaving two years later to teach at the University of Pennsylvania and Yale University. He returned to UC Berkeley in 1988.
He is credited as a co-founder of “new institutional economics,” a school of thought that emphasizes the importance of both formal institutions and informal institutions, such as social norms, and how they affect transaction costs.
Williamson describes his work “as a blend of soft social science and abstract economic theory.” His ideas have been used to understand a wide range of organizational and institutional pacts, including the choice and design of contracts, corporate financial structure, antitrust policy and the size and scope of firms.
Scott E. Masten, a professor of business economics and public policy at the University of Michigan’s Stephen M. Ross School of Business, said the “heart of Williamson’s economic organization work emphasizes the limited ability of people to make perfectly informed decisions, and the propensity of at least some individuals to act opportunistically.”
“I was quite surprised to hear my former student had won the Nobel Peace Prize,” said UC Berkeley School of Law Dean Christopher Edley, referring to Barack Obama’s unexpected award, “but I was not surprised to hear this. For years [Williamson] has been an anchor for regulating behavior and dealing with issues of authority and agency. We could not be more pleased.”
Edley was joined by the dean of the Haas School of Business Rich Lyons and chair of the Department of Economics Gérard Roland.
“Berkeley is a multidisciplinary place,” Lyons said, which helped to create an intellectual space for everyone on campus.
Lyons praised Williamson for his work on the formal organization of firms, adding that his work created a “profound influence on young people” that had changed their lives and created an intellectual environment for all of them.
“Professor Williamson made a major contribution to understand the boundaries of a firm,” said Roland. “Nobody else has made such a contribution to putting institutional economics in the forefront. He has taken transactions between business partners to the forefront.”
Williamson earned his undergraduate degree in management from the Massachusetts Institute of Technology, a master’s in business administration from Stanford University and a Ph.D. in economics from Carnegie-Mellon University in Pittsburgh.
He has also been awarded 10 honorary doctorates from universities around the world.
In response to questions from reporters about his thoughts on the current economic meltdown, Williamson underscored the importance of deregulation in both the public and private sectors, including banks.
“An organization should have a council of economic advisors and organizational advisors and there should be interaction between them,” he said, and both sellers and buyers should be mutually respectful of one another.
Williamson and Ostrom will share $1.4 million and each will receive a gold medal and diploma from the king of Sweden Dec. 10, the anniversary of the death of Alfred Nobel, who established the Nobel Prize to honor individuals for their achievements in physics, chemistry, medicine, peace and literature in his will in 1896.
The Swedish central bank created the economics prize in 1969 in honor of Alfred Nobel.
When asked what he felt about the current budget crisis at UC Berkeley which is threatening research opportunities on campus, Williamson said it was pertinent for “Sacramento to step up in these times of trouble” to save valuable educational resources.
More than 5,000 students and faculty at the university walked out of class on Sept. 24 to protest budget cuts, fee hikes and furloughs, and students are planning a conference to organize against the cuts Oct. 24.