Page info: *Author: Mathiesen, H. *Document version: 2.3. *Copyright 1997-2017, ViamInvest. Legal notice. 


Table: Utility maximization or motivation


Introduction: Motivation has to do with inducing certain human behavior by some means. From microeconomics we have the strong concept of utility maximization. In its broadest sense utility is a complete description of what governs human behavior. The concept of motivation or incentives can therefore usefully be studied by looking at means that affect utility and thereby human behavior. Motivation is an important issue in transaction cost economics that stresses the more opportunistic kinds of motivation. This production is inspired by readings of Bernard [1938]. Mayo [1945], McGregor [1960], Simon [1958] and Taylor [1911].


Types of motivation

Elaboration and theoretical connection if any

Rewards - Utility increasing

1) Pecuniary benefit



Classic theory usually simplifies by assuming that utility can be measured in pecuniary terms. That is reasonably to accept for many physical goods and services and even for a concept like risk. But for the types of motivation mentioned below (3-6) the measurement problems seem overwhelmingly. In modern societies the most prevalent mean to induce behavior (e.g. work or give up entitlement to a good) is to pay money. Often classic theory simplifies by assuming money is the only factor that provides incentives.


2) Leisure

Classic theory approximates the utility from leisure by its opportunity cost the pecuniary value of work. Some jobs include more leisure time e.g. concessioned industries or firemen and army personnel. That may explain their relative lower pecuniary wages.


3) Positive social connections

The Human Relation branch of Organization Theory emphasis the role of social connections in organizations. To the degree these are positively perceived they provide motivation to stay in the organization even if salaries is low. It has of cause economic interest if the managers are able to promote a well-perceived atmosphere to keep good employees and attract others. This theory is young and informal. It has succeeded in stressing the importance of social relations, but work still need to be done to show how to create social connections in a way that make organizations more efficient


4) Positive objectives

The Human Resource branch of Organization Theory stress that the activity of the organization may be a motivational factor. One can find many examples of people doing a couple of hours of unpaid work a week because they get utility from supporting what they believe to be a good case.


5) Positive social norms

The Corporate Culture branch of Organization Theory emphasizes that management may promote efficiency by creating a corporate culture that makes employees identifies themselves with the organization. If you feel that the organization is a part of your own identity then you will care for its vitality, in other words you are motivated to do your job well. E.g. people working for IBM may believe that they make the best computers in the world and feel proud to be a part of that team.


6) Many degrees of freedom

In the modern capitalistic society the degrees of freedom are nearly complete. As long as you don’t hurt anybody you can do as you please. You can limit these degrees by signing a contract but that will be voluntarily and probably involve compensation. Therefore this factor of motivation may be fully exploited. As a result it may be more relevant to consider its negative counterpart.


Sanctions - Utility decreasing


In general governments are the only one allowed to carrying out sanctions as a means to motivate people to behave in certain ways e.g. not to violate laws. This is contrary to private agents that mostly have rewards at their disposal to induce behavior or the thread to stop a relation. The degrees of freedom that we have as “law obedient citizens “ are almost complete. We have the right to move, start business, speak, vote, and live. These are the rights that we take for granted and most of us would probably start a war if we were denied them without a ‘fair’ reason. Government’s with its police and army has potentially unlimited power to combat lawbreakers. Specifically they may restrict the mentioned freedoms of the lawbreaker. But normally only fines and imprisonment are used. The reason is the principle of vise statesmanship: Governments should use as little power as possible to make people reasonably law obedient. This principle could perhaps be justified by economic terms as well.


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