Sunday, January 20, 2019

Harold Demsetz - A powerful thinker on the intersection between law and economics


Harold Demsetz, one of more brilliant minds of the last 100 years in economics, died earlier this month. Most MBA, asset managers, or investor have never heard of Demsetz, but his work is foundational for understanding microeconomics and price theory. He was one of the key thinkers working on the intersection between law and economics. His most important work focuses on the theory of property rights and the theory of the firm. He tried to answer some very simple but complex questions. Why do property right exist? Why do firms exist? 

Property rights issues are all around us and are constantly under assessment and assault, so a theory for how they will come into existence and when they are useful is critical for trying solve many real life legal problems. The theory of the firm may be even more important in the current "gig" economy with contract workers. The firm attempts to cut costs through effective coordination and monitoring. It does what a market cannot do.

Property rights are fundamental to what investors buy and sell in markets. The foundations for what is a firm are critical for understanding the value associated with share ownership. Read the work of Demsetz and expand your thinking on some critical issues.  

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