My friend Dr. Gary M. C. Shiu wrote an interesting article in the HKEJ about the two 2009 Nobel Economists. “Institutions Matter: Oliver E Williamson’s and Elinor Ostrom’s Contribution to Economics“. Enjoy.
Here is a brief excerpt from “Institutions Matter” (emphasis added),
[Williamson’s] work on merger argues that efficiency gains through cost savings from such transaction might completely offset efficiency losses as the market becomes less competitive after firms merge. Indeed, economists are so impressed by Williamson’s efficiency defense of mergers that they refer to the trade-off involved (costs savings against weakened competition) as the “Williamsonian Trade-off”. It is not difficult to sense the influence of Williamson’s work in this matter when the first Merger Guidelines of the Department of Justice appeared in 1968. Williamson once worked as the Assistant Attorney General at the US Government’s Department of Justice.
[…] A piece of common resource would be utilized in wasteful ways when individuals with access to it have an incentive to extract value from it in the quickest way possible for fear that others get ahead of them. [the “Tragedy of the Commons”] The tragedy lies in that if everybody shares similar expectations, the value of the resource would be dissipated in a sub-optimal manner. Backed by a large number of case studies and well-calibrated experiments, Ostrom’s major contribution in addressing the commons problem is to show how, in the situation described by Hardin, individuals with access to the common property within a community would have incentives to devise usage rules to prevent such wasteful dissipation. Such usage rules are an example of how institutions guide individual interactions towards a better societal outcome.