Innis Lecture: Can the Theory of Incentives Explain Decentralization?

This survey presents within a single model three theories of decentralization of decision-making within organizations based on private information and incentives. Renegotiation, collusion, and limits on communication are three sufficient conditions for decentralization to be optimal.

Incentives and Principles for Individuals in Rawls’s Theory of Justice

Philippe van Parijs (2003) has argued that an egalitarian ethos cannot be part of a post- Political Liberalism Rawlsian view of justice, because the demands of political justice are confined to principles for institutions of the basic structure alone. This paper argues, by contrast, that certain principles for individual conduct—including a principle requiring relatively advantaged individuals to sometimes make their economic choices with the aim of maximising the prospects of the least advantaged—are an integral part of a Rawlsian political conception of justice. It concludes that incentive payments will have a clearly limited role in a Rawlsian theory of justice.

Imaginary relish and exquisite torture : the elaborated intrusion theory of desire

The authors argue that human desire involves conscious cognition that has strong affective connotation and is potentially involved in the determination of appetitive behavior rather than being epiphenomenal to it. Intrusive thoughts about appetitive targets are triggered automatically by external or physiological cues and by cognitive associates. When intrusions elicit significant pleasure or relief, cognitive elaboration usually ensues. Elaboration competes with concurrent cognitive tasks through retrieval of target related information and its retention in working memory. Sensory images are especially important products of intrusion and elaboration because they simulate the sensory and emotional qualities of target acquisition. Desire images are momentarily rewarding but amplify awareness of somatic and emotional deficits. Effects of desires on behavior are moderated by competing incentives, target availability, and skills. The theory provides a coherent account of existing data and suggests new directions for research and treatment.

A theory of waste behaviour in the construction industry

Levels of waste within the construction industry need to be reduced for environmental and economic reasons. Changing people's wasteful behaviour can make a significant contribution. This paper describes a research project that used Ajzen's 'theory of planned behaviour' to investigate the attitudinal forces that shape behaviour at the operative level. It concludes that operatives see waste as an inevitable by-product of construction activity. Attitudes towards waste management are not negative, although they are pragmatic and impeded by perceptions of a lack of managerial commitment. Waste management is perceived as a low project priority, and there is an absence of appropriate resources and incentives to support it. A theory of waste behaviour is proposed for the construction industry, and recommendations are made to help managers improve operatives' attitudes towards waste.

Essays on Stock Option Compensation and the Role of Incentives and Risk (summary section only)

Managerial pay-for-performance sensitivity has increased rapidly around the world. Early empirical research showed that pay-for-performance sensitivity resulting from stock ownership and stock options appeared to be quite low during the 1970s and early 1980s in the U.S. However, recent empirical research from the U.S. shows an enormous increase in pay-for-performance sensitivity. The global trend has also reached Finland, where stock options have become a major ingredient of executive compensation. The fact that stock options seem to be an appealing form of remuneration from a theoretical point of view combined with the observation that the use of this compensation form has increased significantly during the recent years, implies that research on the dynamics of stock option compensation is highly relevant for the academic community, as well as for practitioners and regulators. The research questions of the thesis are analyzed in four separate essays. The first essay examines whether stock option compensation practices of Finnish firms are consistent with predictions from principal-agent theory. The second essay explores one of the major puzzles in the compensation literature by studying determinants of stock option contract design. In theory, optimal contract design should vary according to firm characteristics. However, in the U.S., variation in contract design seems to be surprisingly low, a phenomenon generally attributed to tax and accounting considerations. In Finland, however, firms are not subject to stringent contracting restrictions, and the variation in contract design tends, in fact, to be quite substantial. The third essay studies the impact of price- and risk incentives arising from stock option compensation on firm investment. In addition, the essay explores one of the most debated questions in the literature, in particular, the relation between incentives and firm performance. Finally, several strands of literature in both economics and corporate finance hypothesize that economic uncertainty is related to corporate decision-making. Previous research has shown that risk tends to slow down firm investment. In the fourth essay, it is hypothesized that firm risk slows down growth from a more universal perspective. Consistent with this view, it is shown that risk not only tends to slow down firm investment, but also employment growth. Moreover, the essay explores whether the nature of firms’ compensation policies, in particular, whether firms make use of stock option compensation, affects the relation between risk and firm growth. In summary, the four essays contribute to the current understanding of stock options as a form of equity incentives, and how incentives and risk affect corporate decision-making. By this, the thesis promotes the knowledge related to the modern theory of the firm.

Imaginary relish and exquisite torture: The elaborated intrusion theory of desire

The authors argue that human desire involves conscious cognition that has strong affective connotation and is potentially involved in the determination of appetitive behavior rather than being epiphenomenal to it. Intrusive thoughts about appetitive targets are triggered automatically by external or physiological cues and by cognitive associates. When intrusions elicit significant pleasure or relief, cognitive elaboration usually ensues. Elaboration competes with concurrent cognitive tasks through retrieval of target-related information and its retention in working memory. Sensory images are especially important products of intrusion and elaboration because they simulate the sensory and emotional qualities of target acquisition. Desire images are momentarily rewarding but amplify awareness of somatic and emotional deficits. Effects of desires on behavior are moderated by competing incentives, target availability, and skills. The theory provides a coherent account of existing data and suggests new directions for research and treatment.

In search of a theory of integrated marketing communication

For the most part, the literature base for Integrated Marketing Communication (IMC) has developed from an applied or tactical level rather than from an intellectual or theoretical one. Since industry, practitioner and even academic studies have provided little insight into what IMC is and how it operates, our approach has been to investigate that other IMC community, that is, the academic or instructional group responsible for disseminating IMC knowledge. We proposed that the people providing course instruction and directing research activities have some basis for how they organize, consider and therefore instruct in the area of IMC. A syllabi analysis of 87 IMC units in six countries investigated the content of the unit, its delivery both physically and conceptually, and defined the audience of the unit. The study failed to discover any type of latent theoretical foundation that might be used as a base for understanding IMC. The students who are being prepared to extend, expand and enhance IMC concepts do not appear to be well-served by the curriculum we found in our research. The study concludes with a model for further IMC curriculum development.

Varieties of Asian capitalism : toward an institutional theory of Asian enterprise

In this paper we respond to calls for an institution-based perspective on strategy. With its emphasis upon mimetic, coercive, and normative isomorphism, institutional theory has earned a deterministic reputation and seems an unlikely foundation on which to construct a theory of strategy. However, a second movement in institutional theory is emerging that gives greater emphasis to creativity and agency. We develop this approach by highlighting co-evolutionary processes that are shaping the varieties of capitalism (VoC) in Asia. To do so, we examine the extent to which the VoC model can be fruitfully applied in the Asian context. In the spirit of the second movement of institutional theory, we describe three processes in which firm strategy collectively and intentionally feeds back to shape institutions: (1) filling institutional voids, (2) retarding institutional innovation, and (3) deploying institutional escape. We outline the key contributions contained in the articles of this Special Issue and discuss a research agenda generated by the VoC perspective.

Tests of the elaborated intrusion theory of craving and desire : features of alcohol craving during treatment for an alcohol disorder

Objectives. We tested predictions from the elaborated intrusion (EI) theory of desire, which distinguishes intrusive thoughts and elaborations, and emphasizes the importance of imagery. Secondarily, we undertook preliminary evaluations of the Alcohol Craving Experience (ACE) questionnaire, a new measure based on EI Theory. Methods. Participants (N ¼ 232) were in correspondence-based treatment trials for alcohol abuse or dependence. The study used retrospective reports obtained early in treatment using the ACE, and daily self-monitoring of urges, craving, mood and alcohol consumption. Results. The ACE displayed high internal consistency and test – retest reliability and sound relationships with self-monitored craving, and was related to Baseline alcohol dependence, but not to consumption. Imagery during craving was experienced by 81%,with 2.3 senses involved on average. More frequent imagery was associated with longer episode durations and stronger craving. Transient intrusive thoughts were reported by 87% of respondents, and were more common if they frequently attempted to stop alcohol cognitions. Associations between average daily craving and weekly consumption were seen. Depression and negative mood were associated with more frequent, stronger and longer lasting desires for alcohol. Conclusions. Results supported the distinction of automatic and controlled processes in craving, together with the importance of craving imagery. They were also consistent with prediction of consumption from cross-situational averages of craving, and with positive associations between craving and negative mood. However, this study’s retrospective reporting and correlational design require that its results be interpreted cautiously. Research using ecological momentary measures and laboratory manipulations is needed before confident inferences about causality can be made.