Socio-economic: Rational Choice Theory and Organization

Topics: Rational choice theory, Economics, Rationality Pages: 23 (7865 words) Published: May 30, 2011
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IJSE 38,2

A socio-economic view on management control
Bernard H.J. Verstegen
School of Management, Open University of The Netherlands, Heerlen, The Netherlands Abstract
Purpose – The purpose of this paper is to introduce a framework of management control that accommodates phenomena found in literature, like the importance of social factors for coordinating behavior, rule-following behavior and the evolutionary nature of control. Phenomena that the dominant economic view, based on self-interested actors and financial incentives, cannot easily absorb. Design/methodology/approach – The framework characterizes control as the coordination of behavior in organizations. It is based on two-stage rationality in which rule-following behavior gives meaning to self-interest, and in doing so, coordinates behavior. Findings – Management control of two-stage rational behavior involves managing the various elements of the framework in combination. The evolution of the coordinating rules in an organization will be partly autonomous and partly formed within the organization. Therefore, management control entails influencing the development path of the organization. Although it is concerned with the formation of controls in an organization, it is not exclusively concerned with the design of controls. Practical implications – The framework provides broader opportunities for managing an organization than the theory based on simple rational choice. Social implications – In this socio-economic approach, management will not consider controlling the “economic man” to be its core activity; instead, management will be coordinating the behavior of authentic human beings. Originality/value – These aspects of management remain undervalued in mainstream literature on management control. The non-mainstream literature does pay attention to these aspects; however, they are seldom integrated in one theoretical structure that is based explicitly on a broad conception of human behavior. The socio-economic view can offer valuable insight into management and organization. Keywords Control, General management, Organizations, Behaviour, Rationalization Paper type Conceptual paper

Received April 2010 Accepted May 2010

Introduction One of the pressing issues facing economic science is how to deal with the restrictive nature of the one-dimensional rationality concept. We do not want to diminish human action to “rational choice” and abolish the meaning of other factors like culture, norms and values, history and the like for economic action. If we did, we would miss or overlook empirical phenomena leaving us with a poor social-economic point of view. A way to deal with this problem would be to build images of the individual that permit both self-interested behavior as well as antecedent factors. Such a richer theoretical insight should enable us to accommodate empirical phenomena like the ones mentioned above. Considering the universal nature of theory on human action, this approach should apply International Journal of Social Economics Vol. 38 No. 2, 2011 pp. 114-127 q Emerald Group Publishing Limited 0306-8293 DOI 10.1108/03068291111091990

Thanks are due to Arco van de Ven, Ed Vosselman, Ivo De Loo, Boudewijn Janssen, Thomas van Zanten and the participants in the seminar of the Research Center on Accounting and Control Change on March 4 and 5, 2010, in Nijmegen, The Netherlands, for their valuable comments on an earlier version of this paper. Of course, the usual disclaimer applies.

to a variety of aspects and sectors of economic action, among which consumer behavior, economic policy, organizational behavior and intra-organizational behavior. This paper will zoom in on the coordination of human behavior in organizations, in particular on management control. Although we know that a view on management and management control depends on...
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