The nature of man

[e-mail]esterAbstractUnderstandinghumanbehaviorisfundamentaltounderstandinghoworganizationsfunction,whethertheyareprofit-makingfirms,non-profitenterprises,orgovernmentagencies.Muchdisagreementamongmanagers,scientists,policymakers,andcitizensarisesfromsubstantialdifferencesinthewaywethinkabouthumannature—abouttheirstrengths,frailties,intelligence,ignorance,honesty,selfishness,andgenerosity.Inthispaperwediscussfivealternativemodelsofhumanbehaviorthatarecommonlyused(thoughusuallyimplicitly).TheyaretheResourceful,Evaluative,MaximizingModel(REMM),Economic(orMoneyMaximizing)Model,Psychological(orHierarchyofNeeds)Model,Sociological(orSocialVictim)Model,andthePolitical(orPerfectAgent)Model.WearguethatREMMbestdescribesthesystematicallyrationalpartofhumanbehavior.Itservesasthefoundationfortheagencymodeloffinancial,organizational,andgovernancestructureoffirms.Thegrowingbodyofsocialscienceresearchonhumanbehaviorhasacommonmessage:Whethertheyarepoliticians,managers,academics,professionals,philanthropists,orfactoryworkers,individualsareresourceful,evaluativemaximizers.Theyrespondcreativelytotheopportunitiestheenvironmentpresents,andtheyworktoloosenconstraintsthatpreventthemfromdoingwhattheywish.Theycareaboutnotonlymoney,butaboutalmosteverything—respect,honor,power,love,andthewelfareofothers.Thechallengeforoursociety,andforallorganizationsinit,istoestablishrulesofthegamethattapanddirecthumanenergyinwaysthatincreaseratherthanreducetheeffectiveuseofourscarceresources.©M.C.JensenandW.H.Meckling,1994.Allrightsreserved.JournalofAppliedCorporateFinance,Summer1994,V.7,No.2,pp.4-19.alsopublishedinMichaelC.Jensen,FoundationsofOrganizationalStrategy,HarvardUniversityPress,1998.Youmayredistributethisdocumentfreely,butpleasedonotposttheelectronicfileontheweb.Iwelcomeweblinkstothisdocumentat=5471.Irevisemypapersregularly,andprovidingalinktotheoriginalensuresthatreaderswillreceivethemostrecentversion.Thankyou,MichaelC.JensenTHENATUREOFMAN*[e-mail]esterJournalofAppliedCorporateFinance,Summer1994,V.7,No.2,pp.4-19.alsopublishedinMichaelC.Jensen,FoundationsofOrganizationalStrategy,HarvardUniversityPress,1998.Understandinghumanbehaviorisfundamentaltounderstandinghoworganizationsfunction,whethertheybeprofit-makingfirmsintheprivatesector,non-profitenterprises,orgovernmentagenciesintendedtoservethe“publicinterest.”Muchpolicydisagreementamongmanagers,scientists,policymakers,andcitizensarisesfromsubstantial,thoughusuallyimplicit,differencesinthewaywethinkabouthumannature—aboutthestrengths,frailties,intelligence,ignorance,honesty,selfishness,generosity,andaltruismofindividuals.*Weusetheword“man”hereinitsuseasanon-gender-specificreferencetohumanbeings.Wehaveattemptedtomakethelanguagelessgender-specificbecausethemodelsbeingdiscusseddescribethebehaviorofbothsexes.Wehavebeenunabletofindagenderlesstermforuseinthetitlewhichhasthesamedesiredimpact.Thefirstdraftofthispaperwaswrittenintheearly1970s.SincethenithasbeenusedannuallyinourcourseonCoordinationandControlandtheManagementofOrganizationsatbothRochesterandHarvard.Weareindebtedtoourstudentsformuchhelpinhoningtheseideasovertheyears.AnearlierversionofsomeoftheideasinthispaperwerepublishedpreviouslyinWilliamH.Meckling,“ValuesandtheChoiceoftheModeloftheIndividualintheSocialSciences,”SchweizerischeZeitschriftfurVolkswirtshaftundStatistikRevueSuissed’EconomiePolitiqueetdeStatistique(December1976).ThisresearchhasbeensupportedbytheManagerialEconomicsResearchCenter,UniversityofRochester,andtheDivisionofResearch,HarvardBusinessSchool.Wearegratefulfortheadviceandcommentsofmanypeople,includingChrisArgyris,GeorgeBaker,FischerBlack,DonaldChew,PerryFagan,DonnaFeinberg,AmyHart,KarinMonsler,KevinMurphy,NatalieJensen,Steve-AnnaStephens,RichardTedlow,RobinTish,KarenWruckandAbrahamZaleznik.JensenandMeckling19942Theusefulnessofanymodelofhumannaturedependsonitsabilitytoexplainawiderangeofsocialphenomena;thetestofsuchamodelisthedegreetowhichitisconsistentwithobservedhumanbehavior.Amodelthatexplainsbehavioronlyinonesmallgeographicalarea,oronlyforashortperiodinhistory,oronlyforpeopleengagedincertainpursuits,isnotveryuseful.Forthisreasonwemustusealimitednumberofgeneraltraitstocharacterizehumanbehavior.Greaterdetaillimitstheexplanatoryabilityofamodelbecauseindividualpeoplediffersogreatly.Wewantasetofcharacteristicsthatcapturestheessenceofhumannature,butnomore.Whilethismaysoundabstractandcomplex,itisneither.Eachofushasinmindandusesmodelsofhumannatureeveryday.Weallunderstand,forexample,thatpeoplearewillingtomaketradeoffsamongthingsthattheywant.Ourspouses,partners,children,friends,businessassociates,orperfectstrangers,canbeinducedtomakesubstitutionsofallkinds.WeoffertogoouttodinnerSaturdaynightinsteadoftotheconcerttonight.Weoffertosubstituteabicycleforastereoasabirthdaygift.Weallowanemployeetogohomeearlytodayifthetimeismadeupnextwee