Stephen Walt, "A More Rational Choice for a Nobel Prize."

Ostrom (and the co-winner, organization theorist Oliver Williamson) join a group of recent winners chosen more for theoretical insight and real-world relevance than for mathematical scholasticism. Others in this same group would include economic historians Douglass North and Robert Fogel, behavioral economist Daniel Kahneman, game theorist/strategist Thomas Schelling, and economist-philosopher Amartya Sen. Scholars with an international orientation have been doing pretty well in recent years too: Schelling was awarded for game-theoretic work on international conflict, Paul Krugman for his work on international trade, and Sen's work on poverty and famines has clear international implications. Kudos to the prize committee for their eclectic approach to the award--if only more economics departments thought this way.

Daniel Drezner, "What Other Political Scientists Deserve the Nobel?"

Paul Romer, "Skyhooks versus Cranes: The Nobel Prize for Elinor Ostrom."

A typical conclusion was that rules that assign property rights and rules that let people trade lead to good outcomes. What’s the skyhook? That people will follow the rules. Why would they respect the property rights of someone else? We had no idea. We might have had in mind something like this: police officers will arrest people who don’t follow the rules. But this is just another skyhook. Who are these police officers? Why do they follow rules? This is not an idle concern. Elinor showed that there are lots of important cases where people follow rules about ownership without police officers. One of the central challenges in understanding failures of economic development is that in many places, police officers don’t follow the rules they are meant to enforce.

A political scientist and an economist! Congratulations Elinor Ostrom and Oliver Williamson!

To read more about their contributions specifically in the field of "New Institutional Economics," the following are some related links:

Blogging by Paul Krugman, "An Institutional Economics Prize. "

The way to think about this prize is that it’s an award for institutional economics, or maybe more specifically New Institutional Economics.

Commentary by Michael Spence, "Markets Aren't Everything." (Via Mankiw)

The common theme underlying the prize this year is that markets do not solve all problems of resource allocation and incentives well or even at all. That is not a new idea. What is important is that people and societies find ways through organizational structures and arrangements, political and other institutions, values, incentives and recognition, and the careful management of information, to solve these problems. Professors Ostrom and Williamson have led the development of this increasingly important part of economics.

...The prizes this year can be celebrated in recognizing two highly original scholars and in so doing, highlighting the important parts of economics, political science and political economy that they have done so much to build.

Blogging by Steven Levitt, "What This Year's Nobel Prize in Economics Says About the Nobel Prize in Economics."

So the short answer is that the economics profession is going to hate the prize going to Ostrom even more than Republicans hated the Peace prize going to Obama. Economists want this to be an economists’ prize (after all, economists are self-interested). This award demonstrates, in a way that no previous prize has, that the prize is moving toward a Nobel in Social Science, not a Nobel in economics.