Incentives Matter, But What Do They Mean? Understanding the Meaning of Market Coordination

Abstract

This article argues that the discussion of incentives in economics neglects a crucial question: why are some incentives felt as powerful reasons to alter actions, while other incentives have little, or even counterproductive, effect? We argue that an answer to this question can be found in recent empirical work in economic sociology, institutional economics and Austrian economics. This work studies the meaning of incentives in particular social settings and shows that incentives become meaningful in relation to those settings. We demonstrate that it illuminates why certain incentives are perceived as powerful reasons for action, while others are mostly ignored. We also explain why incentives are typically tied to certain social roles that can be identified through ideal-type analysis, and why situations of high uncertainty are of particular use for studying the activity of actors. In order to understand entrepreneurial action, financial markets, and why monetary rewards and market exchange are sometimes perceived as the wrong type of incentive, research should focus on how an uncertain future is understood by actors. We identify four building blocks in the work of Alfred Schutz, and suggest they yield a constructive research program at the intersection between economics and sociology.