Economist Harold Demsetz, a Chicago school theorist who was one of the pioneers of the approach now called New Institutional Economics, had died. The former University of Chicago and UCLA professor was 88 years old. See comments from Competitive Enterprise Institute staff below.
Fellow Ryan Young:
Demsetz was, among many other things, one of the founders of the multidisciplinary law and economics movement. Today, major universities have entire departments devoted to Demsetz's more-inclusive approach. He has influenced work ranging from regulatory reform to antitrust regulation to utilities regulation to good old fashioned price theory.
Demsetz's most useful idea is the Nirvana fallacy, outlined in his 1969 article “Information and Efficiency: Another Viewpoint.” When looking at a policy, he advised, don't compare it to an idealized blackboard model. Compare it to real-world alternatives. Markets fail all the time—this does not automatically justify government intervention. Real-world governments are also imperfect. Government should only intervene if it can provide, in the real world, a better outcome than market processes.
Demsetz's Nobel-worthy insight is needed today as much as ever. He might be gone now, but his ideas will continue to change the world for the better for generations to come.
Vice President for Strategy Iain Murray:
In his seminal article, “Towards a Theory of Property Rights,” Demsetz looked at the importance of property rights in economic transactions and their role in internalizing social costs. In particular, his research into the evolution of property rights among the Montagnais natives of Canada’s Labrador Peninsula demonstrates that such rights were not only not just a European phenomenon but that such rights could be used for private conservation of wildlife resources such as beaver (it was the European disdain for the Montagnais system that led to overexploitation of the beaver).
In many ways, Demsetz was as responsible as Ronald Coase for the development of Coasean thought, which underpins CEI’s economic thinking. We hope to continue to apply his insights to the problems of public policy for many years to come.
President Kent Lassman:
What a magnificent career. Demsetz provided novel insights into how to apply economic thinking that were rooted in practical, applied micro understanding. Theory wasn’t divorced from reality. His contributions were varied and especially helpful to the economics of utilities regulation.
For more on influential economists, see:
- Fred L. Smith’s video interview with Ronald Coase (2004)
- Iain Murray’s National Review article on Milton Friedman (2006)
- Vaclav Klaus’ keynote address on Joseph Schumpeter (2008)
- Ryan Young’s blog post on Adam Smith (2011)
- Fred L. Smith’s blog post on Elinor Ostrom (2012)
- Ryan Young’s blog post on Friedrich Hayek (2012)
- Fred L. Smith’s Forbes column on Ronald Coase (2013)
- Ryan Young’s blog post on James Buchanan (2013)
- Fred L. Smith’s Forbes column on Gordon Tullock (2014)
- Ryan Young’s blog post on Gordon Tullock (2014)
- Ivan Osorio’s blog post on Giancarlo Ibárgüen (2016)
- Jim Harper’s blog post on Bruno Leoni (2017)
- Fred L. Smith’s Forbes column on Adam Smith (2017)
- Myron Ebell’s blog post on British economist David Henderson (2018)
- Richard Morrison’s blog post on Adam Smith (2018)