This year, the Royal Swedish Academy of Sciences awarded the Nobel Memorial Prize in economics to two Americans, Elinor Ostrom and Oliver Williamson. The description that the Academy gave for its award will sound as dry as dust to people who are not familiar with the nature of economic inquiry.

Ostrom received her prize for showing the various mechanisms that parties can use to control the operations of various forms of common pool resources, e.g., fisheries, in order to prevent their overconsumption and premature exhaustion. Williamson has written extensively on the various devices that are used to control the internal operations of the firm, including internal hierarchies, i.e., permanent relations among individuals in a firm that can be used to eliminate conflicts of interests, and opportunistic behavior in various exchange transactions that might otherwise be conducted on a case-by-case basis.

Issuing the award to these two economists is a welcome trend because it once again leads us to focus on the microeconomic issues that have, when aggregated, macroeconomic consequences. In times of great economic stress, the tendency of many people is to think that the cure for all our social ailments lies in macroeconomics.

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