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 / Summer 2011 / Issue 63(originally published by Booz & Company)


New Views of Microeconomics

Although the concept of identity makes eminent sense at the conceptual level, its implications for the key neoclassical notions of market equilibrium and predictability may be problematic, because identities are fundamentally unstable and open to manipulation. For instance, identity economics may offer much more radical explanations for some phenomena, such as the dramatic divergence of CEO compensation from its historical relationship with employee compensation. Maybe CEO compensation isn’t based on market forces at all; maybe it is driven, as many observers have already suggested, by the forces that come into play when boards of directors identify more closely with CEOs than with shareholders. In short, once admitted to the discipline, identity economics could turn out to be a Trojan horse. Critics of the neoclassical economic synthesis and its influence on management should probably be cheering, but quietly.

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