Harold Demsetz, R.I.P.
The loss of a great economist and important property rights theorist.
Noted economist Harold Demsetz has passed. A longtime member of the UCLA economics department, Demsetz was an important "Chicago School" economist who, among other things, wrote several seminal papers on the law and economics of property rights.
At Cafe Hayek, Don Boudreaux writes:
he was one of the greatest economic thinkers in history. Demsetz thought deeply and creatively and philosophically about issues. A master of microeconomic theory, Demsetz was unsurpassed – and rarely matched – in exercising the wisdom necessary to understand how to apply that theory and what conclusions to draw from it.
From the American Econoimics Association (where Demesetz was a Distinguished Fellow in 2013):
Harold Demsetz is one of the most creative and deep microeconomists of the 20th century. Several of his contributions anticipated subsequent research by years or even decades, and have offered unusually insightful analyses of fundamental problems of economic theory.
Demsetz's most famous paper "Production, Information Costs, and Economic Organization" (with Armen Alchian, American Economic Review 1972) is one of the most cited papers in all of economics. It analyzes the fundamental question first raised by Coase, "What is a firm?" and tries to understand the difference between contracts occurring inside the firm (for example, with employees) and those occurring in the market (for example, with customers). Alchian and Demsetz argue that some contracts are efficiently brought inside the firm because doing so reduces the costs of monitoring of performance, especially when production occurs in teams. Alchian and Demsetz's approach has been challenged by more recent developments, such as Grossman and Hart (1986), but remains a classic in the theory of the firm.
For law and economics types, Demzetz's most famous work may have been Toward a Theory of Property Rights, from the American Economic Review. This seminal article outlined a theory of how property rights evolve and, as such, made an essential contribution to the field and provided a foundation for further inquiry on this important question (some of which he wrote himself) For more on his contribution here, see the Online Library of LIberty entry on Demsetz and Property Rights. I also noted the importance of his work for libertarian approaches to environmetal protection.
Demsetz was a tremendously important and undervalued thinker. He will be missed.