Incentive Systems: A Theory of Organizations

TLDR

Organizations use incentive systems—material, solidary, and purposive—to shape individual contributions, and these systems explain organizational behavior, change, cooperation, conflict, and competition for autonomy and resources. The study proposes hypotheses linking the three incentive types to characteristic organizational behaviors and demonstrates how these types correspond to specific real‑world organizations. The authors predict that executive actions to sustain the group and adjust incentives in response to resource shifts drive changes in organizational activities and purposes, and that gradual shifts in individual motives within society lead to predictable alterations in organizational character.

Abstract

Organizations distribute incentives to individuals in order to induce them to contribute activity. Aspects of organizational behavior and change are explained by exploring the differing consequences of different incentive systems. Three types of organizations are distinguished on the basis of three kinds of incentives: material, solidary, and purposive. Hypotheses are presented about the characteristic behavior of these types, and the correspondence between the types and certain actual organizations is shown. Changes in organizational activities and purposes are predicted by assuming that the executive's function is to perpetuate his group, and by assuming that he alters incentives to adapt to changes in the supplies of incentive-yielding resources. Co-operation, conflict, and other relationships among organizations are explained in terms of competition for autonomy and resources. It is suggested that gradual changes of personal motives within a society have predictable consequences for the character of organizations. Peter B. Clark is assistant professor of political science, Yale University; James Q. Wilson is assistant professor of political science, University of Chicago.