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.

UPDATE: Additional remembrances from Peter Boettke and Art Carden.

Comments

[Martinned]

RIP indeed. When I did my Ph.D. I spent many fine days studying his papers...

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I often wondered how you could evolve the concept of property rights, and probably ought to add his book to my four shelves of books-to-read. I eventually decided that if you own tools and materials, what you make is yours; but that assumes the tools and materials are also ownable property. A chicken and egg problem. Then I figured that if you were stranded on a desert idle, or were the first human to discover North America from Siberia, then even if you didn't own the raw resources, at least no one else did either, and by now, zillions of generations later, you just have to accept current titles as valid because they are too mixed up by wars and death to ever resolve back to first owners/discoverers. Europe is far worse because human population extends back so much further.

I figure stealing and slavery are the same thing. If you make a chair and someone steals it, that is no different from holding a gun to your head and forcing you to make a chair for free. But that doesn't have much to do with defining property rights.

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Oops -- that's a paper, not a book. Guess I'll have to read up on his books.

[MarkW201]

Harold Demsetz was one of my professors when I was in the PhD program at UCLA in the late 1980s. Although I came to eventually disagree with his prescriptive policy positions on a lot of issues, he was a pretty important economic thinker. Anyone interested in his work could track down the two volumes of his The Organization of Economic Activity--the separate volumes were titled Ownership, Control and the Firm and Efficiency, Competition, and Policy. They collect virtually all of his important papers published through about 1987 or 1988.

[David1234]

He "passed"? "Passed away" is bad enough.

[Dan Schiavetta]

Like probably most law students at the time, the only exposure I had to him was his article in our Property text as to how the free market would prevent pollution. It was a howler. An early sign of how much law professors (and particularly the L & E crowd) are out of touch with reality.