Incentives Matter, but What do They Mean? Understanding the Meaning of Market Coordination

Abstract

This article argues that within the current discussion of incentives in economics a crucial question is neglected: why are some incentives felt as very powerful reasons to alter actions at the same time as other incentives hardly manage to produce any effect at all, and while yet other incentives actually have counterproductive effects? We argue that an answer to this question can be found in recent empirical work in both economic sociology and institutional and Austrian economics. In this empirical work the meaning of incentives is studied within particular social settings, and it is demonstrated that incentives become meaningful in relation to these social settings. Such studies demonstrate that actors coordinate their plans in relation to the (ideal-typical) expectations of the acts of other actors, giving rise to shared understandings within distinct social provinces of meaning. It is within such shared understandings that actions and incentives gain significance, or remain powerless. This surprising convergence in empirical work in sociology and economics is used to argue for a research agenda that studies the process of mutual coordination of individuals, in which shared meanings, including the meaning of incentives, emerge.