Armen Alchian, is an American economist of Armenian descent, and is one of the relevant and most important economists that will be discussed in class. He was born on April 12, 1914 in Fresno, California. In 1932 he attended Fresno State College, and transferred to Stanford in 1934. He obtained his B.A. from Stanford in 1936. He continued at Stanford as a graduate student, finishing his Ph.D. dissertation on "The Effects of Changes in the General Wage Structure" in 1943. As a founding father of "law and economics" school, his approach emphasizes the implications of property rights for risk bearing and incentive reasons, and the inefficiencies that result from common ownership.
During 1950's Alchian contributed to the theory of the firm by introducing a maximization debate. He introduced the "survival" principle of evolution into market structure analysis, implying that not all firms consciously maximize profits; but the competitive price mechanism and the market will naturally will not allow ones who do not maximize profits survive. Although at any point in time there may be non-profit-maximizers in the market, in the long run, as the process of evolution continues, only profit-maximizers will survive. "Thus, the assumption of profit-maximization in economic theory, Alchian argued, was a valid generalization even if it did not correspond to fact at any point in time."
His interest in law and economics lead him to investigate the operation of the firms and other organizations, and published a paper with Harold Demsetz in 1970 on the theory of the firm. This paper mainly focused on how externalities associated with incentive problems can be internalized. During late 70's he continued further research on the topic with Robert Crawford and Benjamin Klein.
He was the pioneer of the idea that information costs can lead to resource unemployment, especially of labor. In addition to the basic idea of unemployed resources searching for more productive uses, Alchian emphasized the role of middlemen in the facilitation of resource employment.
