Motivation and the Theory of the Firm

This paper proposes to revisit the debate on the theory of the firm using motivation theory as the primary analytical tool. Through the lens of motivation theory, the governance-based perspective emphasizes the role of extrinsic motivation (primarily in the form of incentives and governance structures) in counteracting opportunism and contractual hazards. In turn, the competence-based approach (implicitly) builds on the role of identity-based normative intrinsic motivation seeing the firm as a social community in which members are willing to share knowledge in compliance to embedded norms and values. Based on our framework of different motivational mechanisms at work in an organizational context and a consideration of the interaction effects between them, one can reconcile much of the controversy between the two approaches. The application of motivation theory further enables us to expand the theory to aspects the current approaches do not yet cover. The consideration of enjoyment-based hedonic intrinsic motivation allows us to highlight the role of firms as devices through which individuals can satisfy fundamental learning and self-enhancement needs. Finally, motivation-theory offers complementary explanations for inquiries related to the sources of firm heterogeneity and the determinants of firm boundaries.