The organization of economic activity: A review article

Abstract

The title and covers of Demsetz's (1988, 1989) two new volumes suggest an entirely new treatise, but the inside flaps already explain that they consist mainly of reprints of published articles, with some new chapters. Though the 'labeling' is deceptive, the contents are often stimulating. Demsetz has been an influential contributor to the foundations of property rights, transaction cost, law and economics, as well as mainstream industrial organization. His 1972 article with Alchian, in particular, stimulated much of the modem interest in the internal organization of the firm. Reading Demsetz's collected works together with his newer contributions provides an opportunity to reconsider some of the most important issues in economics, clearly if not always convincingly presented from a consistently laissez-faire point of view. Demsetz shows how rigorous verbal reasoning can illuminate the major questions in economics, questions which are often neglected in the more rigorous mathematical modeling of matters of detail which dominate many journals, and even his errors and omissions provide more food for thought than many a faultless formal deduction from questionable assumptions.