Handbook of Economic Organization
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Handbook of Economic Organization

Integrating Economic and Organization Theory

Edited by Anna Grandori

This comprehensive and groundbreaking Handbook integrates economic and organization theories to help elucidate the design and evolution of economic organization. Economic organization is regarded both as a subject of inquiry and as an emerging disciplinary field in its own right, integrating insights from economics, organization theory, strategy and management, economic sociology and congnitive psychology. The contributors, who share this integrated approach, are distinguished scholars at the productive peak in their fields. Each original, state-of-the art chapter not only addresses foundational issues, but also identifies key issues for future research.
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Chapter 2: Motivation governance

Margit Osterloh and Bruno S. Frey


Motivation explains people’s behaviour. It is therefore important to understand what induces individuals to work in what way. Standard economics (which has been adopted in many business schools) uses a one-dimensional concept of motivation. It essentially assumes that people are perfectly rational and are solely motivated in a selfish way. Based on the insights of psychological economics, this chapter argues, firstly, that people differ in their preferences with respect to pro-social orientations; secondly, that preferences are plastic and systematically susceptible to the design of institutions, working conditions and the quality of human interactions; thirdly, that individuals partly lack self-control in following their preferences; and fourthly, that preferences often are not known to the individuals and are wrongly interpreted. Applying the insights of psychological economics, we derive measures for motivation governance. Motivation governance consists of formal and informal organization designs aimed at influencing incentives in value-creating directions. The chapter proceeds as follows. Firstly, motivation governance in standard economics is compared to the insights gained from psychological economics. The subsequent sections deal with heterogeneous preferences, in particular pro-social preferences, and plastic preferences. The chapter then engages in two little explored areas, bounded self-control and mistaken preferences, as discussed in happiness research.

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