This paper is part of a larger project to better understand the limitations of the economic theory of agency and incentives. The economic approach focuses on extrinsic incentives whereas a better understanding of human organization requires an understanding of intrinsic motivation and the complementary or substitutive relationships with extrinsic motivation. I will focus on different treatments of informational or “panoptic” questions regarding transparency or non-transparency in the management of firms or other human organizations. This context will give the questions definiteness but the ideas might also be applied in a broader social context.
As a conceptual framework, I will use the seminal work of Douglas McGregor. The economic approach to agency and incentives theory is based essentially on what McGregor called the “Theory X” worldview, and the alternative explored here is essentially what he called the “Theory Y” view of individuals in organizations.
This is a reprint of: Ellerman, David. 2001. “McGregor’s Theory Y Vs. Bentham’s Panopticism: Toward a Critique of the Economic Theory of Agency.” Knowledge, Technology & Policy 14 (1 Spring): 34–49.