Harold Demsetz Quotes

The legal substructure is private; the use of payments to influence the behavior of others is neither prohibited nor frowned upon. But the ' frictions" that perfect decentralization assumes away, must be lived with in laissez-faire.

Modern analysis has yet to describe inefficiency in a world where indivisibilities are present and knowledge is costly to produce.

The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing "imperfect" institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements.

The mark of a capitalistic society is that resources are owned and allocated by such nongovernmental organizations as firms, households, and markets. Resource owners increase productivity through cooperative specialization and this leads to the demand for economic organizations which facilitate cooperation. When a lumber mill employs a cabinetmaker, cooperation between specialists is achieved within a firm, and when a cabinetmaker purchases wood from a lumberman, the cooperation takes place across markets (or between firms). Two important problems face a theory of economic organization—to explain the conditions that determine whether the gains from specialization and cooperative production can better be obtained within an organization like the firm, or across markets, and to explain the structure of the organization.

A relevant notion of efficiency must refer to scarcity and people as they are, not as they could be.

Property rights develop to internalize externalities when the gains of internalization become larger than the cost of internalization. Increased internalization, in the main, results from changes in economic values, changes which stem from the development of new technology and the opening of new markets, changes to which old property rights are poorly attuned [G]iven a community's tastes... [for private versus state ownership], the emergence of new private or state-owned property rights will be in response to changes in technology and relative prices.

Business firms, in which controlled cooperation takes place, are the first important implication of costly transactions. The laissez-faire filtering process, using the profit test, selects some of these business organizations for survival and rejects others.