"Both the Nobel laureates this year have been working on areas that kicked off with the concept of failing markets," said Landis Gabel, a professor at French business school INSEAD, who studied under Williamson in the 1970s.

The choice of Williamson and Ostrom was "timely" in the light of last year's financial collapse, he told AFP. Some traditional market theorists' ideas are considered discredited by the recent financial and economic turmoil.

Gabel said that "both of these laureates have done work quite different from the more traditional, purely theoretical work" based on concepts of "perfect markets."

In Ostrom's area of expertise, he said, "the (market) failure has to do with common resources," while in Williamson's it concerns "imperfections that have implications for the structure of business firms."

Klaus Zauner, an economics professor at City University in London, said Williamson was long overdue a Nobel prize for having "revolutionised" economics through his "transaction cost" theory, now widely taught in business schools.

It enabled businesses to put a price on the savings they can make from long-term economic partnerships as opposed to spot market transactions -- even when at first glance the market-driven option appeared less costly.

Williamson's ideas "have changed the way financial firms are run," said Timothy van Zandt, another INSEAD economics professor.

Ostrom meanwhile has shown how people, rather than market forces, can be the best solution to disputes over shared resources.

"She was the first to emphasise the management of common resources, which do not belong to anybody and must be managed collectively," said Martine Antona, an economist at the French agronomical institute Cirad.

These ideas "began to gain international weight when people started to say that carbon and biodiversity are common goods," she said.

Ostrom is a political scientist little known among economists, and the first woman ever to win the prize. With its bearing on the environment and politics, her work signals "a merging of the social sciences," Zauner said.

Where shared resources -- such as the world's over-exploited stocks of tuna -- are concerned, "if each economic agent looks at their own self-interest then they would over-use the resource," he said.

The answer is cooperation -- rather than competition -- by the groups of people involved.

"Ostrom shows that in some cases an informal relationship that does not incorporate in the market place can actually lead to better solutions for everybody," Zauner said.

Van Zandt told AFP that Ostrom's award "fits in very well" with current global environmental concerns.

These include "how to deal with over-exploited fisheries, global warming and other environmental problems which ultimately come down to too many people using too much of the resources," he said.

Her work, which has included observing poor rural societies, examines the kinds of sustained relationships that bring long-term benefits rather than quick profit, comparable to the business ties covered by Williamson.

Such "informal" links "resolve market failures better than economists would have predicted, without necessarily explicit government intervention," Van Zandt said.

During the financial crisis and subsequent economic hardship of the past two years, many observers likewise saw a crisis of faith in free markets where players make rational economic decisions driven by supply and demand.

Monday's Nobel award "might be a reaction to the problems that have surfaced principally in financial economics," Gabel said.

"That's the field that made the strongest assumptions of perfect rational behaviour, perfect markets. There's a reaction against that now."

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