Post by Henry Smith
It is with great sadness that I just learned that the great economist Harold Demsetz passed away on January 4, 2019 at age 88. Harold was as famous in the law and economics of property as he was in several fields of economics. Recent remembrances can be found here, here, and here.
As President of the Society for Institutional and Organizational Economics, I had the privilege and honor of conferring on Harold the first Elinor Ostrom Lifetime Achievement Award on behalf of the organization in 2015:
From the citation for the award:
Harold Demsetz is Arthur Andersen UCLA Alumni Emeritus Professor of Business Economics. He previously taught at the University of Chicago and the University of Michigan. He chaired UCLA’s Department of Economics from 1978 through 1980. From 1984 to 1995, he held the Arthur Andersen UCLA Alumni Chair in Business Economics and Directed UCLA’s Business Economics program.
A towering figure in the economics of institutions and organizations, he is listed in Mark Blaugh’s Great Economists Since Keynes. His works are focused on property rights, the business firm, problems in monopoly, competition, and antitrust, and even bioeconomics. Harold Demsetz is the author of numerous articles, two published monographs, and five books. His most recent book is From Economic Man to Economic System: Essays on Human Behavior and the Institutions of Capitalism, published in 2009 by Cambridge University Press. The 1972 article he co-authored (with Armen A. Alchian) “Production, Information Costs, and Economic Organization,’ in the American Economic Review, was selected by the American Economic Association as one of the 25 most important papers published in the 100 year history of the AER. His 1967 paper, “Toward a Theory of Property Rights” also in the AER, has inspired an entire literature. Professor Demsetz is an elected Fellow of the American Academy of Arts and Sciences, past director of the Mont Pelerin Society, and past (1996) President of the Western Economics Association International. Northwestern University, in 1994, awarded him an Honorary Doctorate in Humane Letters, and, in 1996, he received an Honorary Doctorate in Social Science from Francisco Marroquín University. Drexel University, in 2012, honored his work on corporate governance, and, in the same year, the University of California Los Angeles honored his work across all disciplines.
On a more personal note, Harold’s work has been hugely influential for me. The first conference I co-organized was on the Evolution of Property Rights, an exploration of the Demsetz Thesis. In a very short 1967 paper, Harold started the modern field of property rights economics. He presented a simple model of property rights according to which property rights emerge when their benefits in terms of problems solved exceed the cost of furnishing them. His use of Eleanor Leacock’s study of beaver-hunting territories among the Montagnais and Naskapi tribes of the Labrador Peninsula is one of the most well-traveled case studies in law and economics. The literature springing out of this one paper is vast and still growing rapidly.
Harold was never a “blackboard economist.” His work was always tethered to reality. Coining the term “nirvana fallacy,” he stressed the importance of comparing real-world institutions to potential real-world alternatives. The failure of an institution to live up to the ideal is not yet an argument for replacing it. Although warnings about the nirvana fallacy are now a staple of comparative institutional analysis, expecting the total eradication of the nirvana fallacy would probably be an instance of it!
As those who met Harold in person or saw him speak, there are few people – much less academics and economists! – who combine such sharpness with twinkling humor. One of his favorite sayings was that Ronald Coase got the Nobel Prize for an article that he Harold had written many more times! As a great thinker and a warm human being, Harold is an irreplaceable original, who will be greatly missed.