Harold Demsetz

In his seminal 1967 paper 'Toward a Theory of Property Rights,' Demsetz argued that property rights develop to internalize externalities when the gains from internalization exceed the costs. He illustrated this with the example of Native American hunting territories among the Montagnais of Labrador, where the rising value of the fur trade led to the emergence of territorial hunting rights.

Demsetz is closely associated with the Chicago school of economics and its emphasis on market efficiency, though he spent most of his academic career at UCLA rather than at the University of Chicago. He was a founding editor of the Journal of Law and Economics alongside key Chicago figures.

Demsetz introduced the concept of the Nirvana fallacy in a 1969 paper, criticizing economists who compare imperfect real-world market arrangements to an idealized perfect competition model that is unattainable. He advocated instead for comparative institutional analysis, evaluating how real-world alternatives perform relative to each other.

Demsetz argued that high industry concentration could result from superior firm efficiency rather than anti-competitive behavior, directly challenging the prevailing Bain-Mason paradigm. This efficiency perspective became central to the Chicago approach to antitrust economics and influenced the relaxation of antitrust enforcement beginning in the 1980s.