I’m late to the “name your favorite underappeciated economist game” that was kicked off in light of John Cassidy’s Pigou column. The Marginal Revolution crew points to Malthus and Fisher (Cowen and Tabarrok, respectively). My first instinct is to go with Armen Alchian. Though Armen has always been much appreciated on this blog. So I’m going to go with UCLA’s Jack Hirshleifer. David Levine’s description of Professor Hirshleifer’s contributions is an excellent summary:
Jack Hirshleifer was an economic theorist with broad-ranging interests. Two areas in economics have especially felt the impact of his work. Early in his career, he was instrumental in the information economics revolution; late in his career, he expanded the domain of economic discourse with his work on evolutionary economics and conflict resolution.
Hirshleifer spanned a broad range of issues in his early work as one of the founding fathers of information economics. He made the abstract ideas of contingent claims concrete through his examples and applications. In the process, he helped develop fundamental tools, such as the covariance of risks, the analysis of gambling and insurance, the Modigliani-Miller Theorem, and the analysis of public investment. He also expanded the range of information economics with two fundamental contributions. His work on the private and social value of information clearly shows that competitive markets need not reflect the social value of information. His example of an inventor who can invest based on the knowledge of the impact of his invention shows that there can be an oversupply of inventive activity. This “race to be first” has its reflection in the current literature on patent races, and represents a fundamental problem in intellectual property law that the profession is only now coming to grips with. His second fundamental contribution showed that differences in taste are not enough to explain speculation. He was the first to analyze speculation in a full general-equilibrium model, with different structures of market completeness carefully considered. Although not generally recognized as such, this is also the first paper to point out the indeterminacy of equilibrium when markets are incomplete.
In addition to his founding contributions in information economics, Hirshleifer had a lifelong interest in conflict, beginning with his earliest work on war damages. Late in his career this area became the focus of his contributions, and he was a leader in extending economic methods to problems more traditionally studied in political science. He wrote broadly on expanding the domain of economic discourse to include the “rational” evolutionary analysis of altruism and spite. His work on conflict showed how “Peace is more likely to the extent that the decisiveness of conflict is low, or … if the stakes are small or the technology favors the defense. More surprisingly, perhaps, increased productive complementarity between the parties does not systematically favor peace…the poorer side is generally motivated to invest more heavily in fighting effort. So conflict can become an income-equalizing process.” Finally, his weakest link/best shot experiment (with Glenn Harrison) demonstrates that economic incentives play a key role in determining how much people will contribute to a public good.
See also Harold Demsetz’s remembrances of his long time colleague and friend.