Its time to dust off (and slightly update) an old post for its annual republication around this time each year. With the start of the school year comes another fall tradition here at TOTM: Nobel speculation.
More specifically, every fall I yell from the rooftops that some combination of Armen Alchian, Harold Demsetz and Ben Klein should win the award. In 2006, I argued that the UCLA trio outperformed the more conventional and popular trio of Holmstrom, Hart and Williamson by standard citation measures. In 2007 I repeated my call for the UCLA trio (hedging my bets by also pulling for GMU colleague Gordon Tullock — another well deserving candidate) and was disappointed again. 2008? I’m nothing if not consistent. In October 2008 I wrote:
I’m sticking with the UCLA economists: Alchian, Demsetz and Klein for contributions to the theory of the firm, property rights, and transaction cost economics. An Alchian and Demsetz prize is probably more likely, but Klein’s contributions with Alchian to the theory of the firm along with his own subsequent extension of that work (see my article on Klein’s contributions to law and economics here) makes the trio especially formidable.
The disappointment was a little bit more salient in 2008, as Thomson Reuters listed Alchian and Demsetz in their list of top 3 possible picks. What a tease. Well, its not quite October yet, but I thought I’d get an early start this year and release my 2009 predictions: Armen Alchian, Harold Demsetz and Ben Klein for contributions to the theory of the firm, property rights and transaction cost economics.
Alchian’s contributions to economics and law and economics are Nobel worthy. Armen’s classic paper with Harold Demsetz (AER, 1972) remains influential in the theory of the firm literature and is listed as the 12th most important paper in economics since 1970 by Kim et al. Klein, Crawford and Alchian’s seminal analysis of vertical integration and the holdup problem (JLE, 1978) ranks #30 on this list. With two hits in the top 30 economics papers since 1970, there is no doubt that Armen had impacted the field. Susan Woodward, a former co-author of Alchian, has authored a wonderful chapter on Alchian’s contributions to law and economics that will appear in the Cohen & Wright Pioneers of Law and Economics volume (there will also be essays on Klein and Demsetz). As I’ve written previously, Alchian also thrives by other measures of scholarly output. Cite counts do not begin to do his body of work justice. Consider, for example, that Armen’s teaching style is the stuff of legend (I say this having the great benefit of having Armen on my dissertation committee, but also sharing as colleagues two Bruin economists that studied under Alchian and knowing many more). Tales are abound of the careers of economists-in-the-making that Armen influenced in one way or another. Nobel Laureate William F. Sharpe captures some of this in his autobiographical exposition explaining Alchian’s influence on his own career:
Armen Alchian, a professor of economics, was my role model at UCLA. He taught his students to question everything; to always begin an analysis with first principles; to concentrate on essential elements and abstract from secondary ones; and to play devil’s advocate with one’s own ideas. In his classes we were able to watch a first-rate mind work on a host of fascinating problems. I have attempted to emulate his approach to research ever since. When I returned to pursue the PhD degree, I took a field in microeconomics with Armen and he also served as chairman of my dissertation committee.
Alchian has also contributed greatly to the law and economics movement through his involvement in the George Mason University LEC judicial training programs. In an important antitrust policy speech, former FTC Chairman Timothy Muris and my GMU colleague articulates a sentiment I’ve heard repeatedly from those who went through the program or watched Armen teach:
Armen Alchian was unexcelled in teaching economics to lawyers. He often presented economics socratically – a technique familiar to lawyers. For years Armen was one of the most popular instructors in Henry Manne’s programs for teaching economics to lawyers. In short courses, he taught literally hundreds of federal judges and law professors.
As Armen’s long-time collaborator William Allen put it in his own letter to the Nobel Committee on Armen’s behalf:
Economics is a broad discipline in methodology, as the Committee is fully aware, ranging from detailed historical, institutional, legalistic description to totally abstract, arcane theory. All such approaches, techniques, and emphases are appropriate. But there is much specialization among the members of the fraternity. And, increasingly, the profession has dealt in rigorous, elegant manipulation, even when the work is purportedly empirical—and even when the substantive results hardly warranted such virtuoso flair. Professor Alchian is a splendid technician, and he has contributed significantly and conspicuously to general “theory.” But, in contrast to many, he has always appreciated that the final payoff of Economics is elucidation of the real workings and phenomena of the world. I know of no one at any time who has had a finer sense of how to use economic analytics to explain the world. Sometimes the explanation requires involved, complex analysis, and Professor Alchian does not fear to use the tools which are required; what is uncommon is his lack of fear in using the MINIMUM tools which are required. In large part, his peculiar genius (the word is used advisedly) is to make extraordinarily effective use of elemental, and often elementary, techniques of analysis. And a host of people—many of whom are now in strategic positions in universities, in government, in the legal system, in the world of business and finance—have enormously benefited from the tutelage of Professor Alchian. … I present Armen Alchian as a giant—a giant who, because of his lack of pretension, is easily overlooked by laymen and even by some supposed professionals—who has greatly honored his profession and uniquely contributed to its usefulness. He would grace the distinguished fraternity of Nobel Laureates.
Here are some Alchian links for interested readers:
As strong as the case for an Alchian Nobel is, the likelihood of a solo Nobel in the areas of the theory of the firm or property rights is unlikely. And what better way to share the prize than with two co-authors who have made substantial and significant contributions, but individually and collectively, to economic problems involving the theory of the firm, property rights and transaction cost economics taking a similar methodological approach and bringing distinction to the UCLA School of economics. I’ve written extensively about Klein’s contributions here. But the most well known contributions (in addition to Klein, Crawford Alchian (1978) and the important exchange between Coase and Klein concerning asset specificity, vertical integration and contracting) include Klein & Leffler (1981), Priest & Klein (1984), Klein and Murphy (1988) and Klein (1995) and Klein (1996) ranging on topics from the role of reputation in the design and performance of contracts, the seminal model of litigation and settlement, vertical restraints, and the economics of franchising.
Demsetz’s contributions to economics are perhaps the most well known of the trio, including the coining of the phrase “Nirvana Fallacy,” but a cursory list as a refresher for the Nobel Committee:
- 1967, “Toward a Theory of Property Rights,” American Economic Review.
- 1968, “Why Regulate Utilities?” Journal of Law and Economics.
- 1969, “Information and Efficiency: Another Viewpoint,” Journal of Law and Economics.
- 1972 (with Armen Alchian, “Production, Information Costs and Economic Organization,” American Economic Review.
- 1973, “Industry Structure, Market Rivalry and Public Policy,” Journal of Law and Economics.
- 1979, “Accounting for Advertising as a Barrier to Entry,” Journal of Business.
- 1982. Economic, Legal, and Political Dimensions of Competition.
- 1988. The Organization of Economic Activity, 2 vols. Blackwell. Reprints most of Demsetz’s better known journal articles published as of date.
- 1994 (with Alexis Jacquemin). Anti-trust Economics: New Challenges for Competition Policy.
- 1995. The Economics of the Business Firm: Seven Critical Commentaries.
- 1997, “The Primacy of Economics: An Explanation of the Comparative Success of Economics in the Social Sciences” (Presidential Address to the Western Economics Association), Economic Inquiry.
And of course, most recently, Professor Demsetz released his newest book, From Economic Man to Economic System on Cambridge University Press.
I know, its early for this stuff. But its time to break the streak. Maybe this is the year ….
P.S. Comments about whether the Nobel Prize is a “real” Nobel or not will be immediately deleted for lack of creativity.