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The years following World War II (1939-1945) saw a generation of remarkable economists who managed among themselves to remake the economics discipline and profession. Of this group, perhaps none possessed a better economic intuition or a keener economic mind than George Stigler. Though not as much of a public figure as his close colleague and longtime friend, Milton Friedman (1912-2006), Stigler did as much, if not more, to form what became known as the Chicago school of economics. It was at Chicago that Stigler would conduct research that not only gained him a Nobel Prize in 1982 but also ultimately changed the course of economic analysis. He had a rare talent for asking the right questions and putting forth provisional answers that inevitably provoked the profession and caused it to reconsider commonly held truths. At the same time, no economist was more a reflection of the ideological struggles of postwar America than Stigler.
George Joseph Stigler was born in Renton, Washington, on January 17, 1911, to immigrant parents. His choice to attend the graduate program at the University of Chicago in 1933 was perhaps his most fateful decision. It was there that he formed a lasting friendship with Friedman as well as becoming acquainted with Aaron Director (1901-2004), a young lecturer in the Department of Economics. These two would be among the very few who ever managed to significantly influence Stigler’s thinking.
Despite his early and continuing contributions in the field of the history of economic thought, his lasting contributions were in industrial organization and government regulation, two fields he essentially helped form. It is perhaps easiest to understand Stigler’s lifework by grasping its essential consistency. In some sense he was a self-appointed white knight dedicated to defending the innocent damsel of traditional price theory against all and any attacks. He developed a knack for demonstrating the efficiency of markets despite and against all appearances to the contrary.
His pioneering work in industrial organization reinforced the core idea that markets work. Two noted works make this amply clear. “The Economics of Information” (1961) analyzes how markets use available information in the most efficient way. His “Theory of Oligopoly” (1964) essentially concludes that the traditional theories of perfect competition and monopoly could amply handle any issue dealing with market structure. (He would later push this further and eliminate the need for monopoly theory as well, indicating that competitive markets were sufficient to encompass the needs of economic analysis.)
If the first part of his postwar research helped to define the field of industrial organization by emphasizing the efficiency of markets, the second half demonstrated the inability of governments to improve outcomes through regulation. “What Can Regulators Regulate? The Case of Electricity” (1962), jointly written with his longtime associate Claire Friedland, empirically indicated that government regulation of public utilities made no real difference in cost. What were then unexpected results helped to precipitate research that ultimately led to the deregula-tory movement in public policy. In the same way, Stigler’s analysis of the political market for government regulation, “The Theory of Economic Regulation” (1971), led to new research exploring how politicians operated and how and why government regulation became law. By ascribing narrow self-interest as the motivation for politicians, Stigler made a major contribution to the expanding field of public choice.
His final work on the role of government, exemplified by the posthumously published “Law or Economics,” is perhaps his most controversial. Logically, political markets should resemble economic ones in that they are both under the sway of the test of time. If an existing arrangement is not the most efficient one, then this should create a situation in which economic agents could benefit through improving the status quo. Therefore whatever is, must by definition be efficient. Otherwise it would change. Such an approach follows perfectly from Stigler’s lifetime drive to become increasingly more consistent in his analysis. At the end of his career, he surveyed an economic world where competitive markets ruled and provided the only useful analytical key.
Unlike Friedman, his close friend, Stigler deliberately eschewed a public presence. Yet without Stigler providing micro-based research, Friedman and his counterrevolution against the forces of Keynesianism and other non-mainstream approaches would have failed to achieve its singular success. Stigler remained active and at his beloved University of Chicago from 1958 until his untimely death on December 1, 1991. He was a scholar of great but cutting wit who had a talent for forming either fierce friendships or lasting animosities. Anything lacking intensity was never his style.
Bibliography:
- Stigler, George J. 1961. The Economics of Information. Journal of Political Economy 69 (3): 213–225.
- Stigler, George J. 1964. A Theory of Oligopoly. Journal of Political Economy 72 (1): 44–61.
- Stigler, George J. 1971. The Theory of Economic Regulation. Bell Journal of Economics and Management Science 2 (1): 3–21.
- Stigler, George J. 1988. Memoirs of an Unregulated Economist. New York: Basic.
- Stigler, George J., and Claire Friedland. 1962. What Can Regulators Regulate? The Case of Electricity. Journal of Law and Economics 5: 1–16.
- Stigler, George J. 1992. Law or Economics. Journal of Law and Economics 35 (October): 455-468.
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