The Royal Swedish Academy of Sciences has awarded the 2009 Nobel Memorial Prize in Economics to two Americans for their work on economic governance research, and how important economic decisions are made "outside of markets – within households, firms, associations, agencies, and other organizations." Elinor Ostrom of Indiana University is the first woman to ever receive the prize. She is being recognized for her work on the management of "common property," a timely subject of study given the attention to finding solutions to the effects of climate change. Ostrom's research has looked at how users of common property might themselves best manage that use, as opposed to outside or government oversight. From the announcement: It has frequently been suggested that common ownership entails excessive resource utilization, and that it is advisable to reduce utilization either by imposing government regulations, such as taxes or quotas, or by privatizing the resource. The theoretical argument is simple: each user weighs private benefits against private costs, thereby neglecting the negative impact on others. However, based on numerous empirical studies of natural-resource management, Elinor Ostrom has concluded that common property is often surprisingly well managed. Thus, the standard theoretical argument against common property is overly simplistic. It neglects the fact that users themselves can both create and enforce rules that mitigate overexploitation. The standard argument also neglects the practical difficulties associated with privatization and government regulation. Oliver Williamson , of the University of California, Berkeley, is being recognized for his work in teaching us "to regard markets, firms, associations, agencies, and even households from the perspective of their contribution to the resolution of conflict." In the early 1970s, Oliver Williamson argued that hierarchical organizations sometimes dominate markets because they provide a cheaper way to resolve conflicts. If two employees quarrel about the allocation of tasks or the distribution of revenues, a chief executive is entitled to decide. In a market, on the other hand, negotiations have to continue until both parties agree. Haggling costs can be substantial, and there is no guarantee that the final agreement will be either immediate or efficient. This argument may seem to suggest that all transactions should take place in a single giant firm. But this is clearly not an accurate description of the world as we know it. The last decade has witnessed just the opposite. Considerable outsourcing has taken place, sometimes by merely selling part of a company, while activities continue in all units much as before. That is, outsourcing creates a market transaction replacing an internal transaction. In order for this kind of outsourcing to make any sense, there must be drawbacks associated with hierarchical organization too. It is interesting to note that both economists were born during the Great Depression. Read the full announcement from the Royal Swedish Academy here .