Incentives, Routines and Self-Command

Abstract

What is the source of the value added by organization? Two leading explanations are coordination of specialized efforts and control of opportunistic behaviour. Both explanations assume that humans are boundedly rational — unable to process large amounts of information, to foresee all possible events, or to ferret out the facts known by others. In addition, control-of-opportunism theories (which have been dominant of late) assume that individuals are self-seeking and often dishonest. In models assuming opportunism, boundedness is invoked to establish the regime of action; within that regime, individuals behave coolly and strategically up to the limits of their ability, making no systematic errors. In these models, incentives, monitoring, and control procedures are seen as reducing the externality problems among individuals caused by cheating and shirking. In coordination models, organizational procedures are explained as necessary to reduce the probability that cooperating individuals will accidentally interfere with one another, leave vital tasks undone because they each expect someone else to perform them, or ignore information relevant to decisions. Both classes of explanation focus on the problems caused by the need for effective cooperation.

Virtue, then, being of two kinds, intellectual and moral, intellectual virtue in the main owes both its birth and its growth to teaching … while moral virtue comes about as a result of habit, whence also its name (ὴθική) is one that is formed by a slight variation from the word ὲθωoζ (habit) …

Of all the things that come to us by nature we first acquire the potentiality and later exhibit the activity … but the virtues we get by first exercising them … men become builders by building and lyre-players by playing the lyre; so too we become just by doing just acts, temperate by doing temperate acts, brave by doing brave acts.

This is confirmed by what happens in states; for legislators make the citizens good by forming habits in them, and this is the wish of every legislator, and those who do not effect it miss their mark, and it is in this that a good constitution differs from a bad one.

Aristotle, Nicomachean Ethics, 1103^a15–1103^b5

Appreciation is extended to Steven A. Lippman for his many useful suggestions.