Product details

The authors of this chapter acknowledge that leadership has received limited attention in economics. They note that classical economics treats the firm as a "black box" production function, ignoring the role of leadership. Building on the principal-agent framework, they introduce an economic model of leadership that defines an organizational leader's challenge as credibly communicating a mission that enables coordinated actions by followers in the face of potential changes. First, the leader receives information about the environment and defines a mission statement-the vision component of leadership-and communicates it to followers. Next, followers, using their own information about the environment, choose a course of action. After this, the leader gets new information about the environment, which is incorporated into a strategy for implementation. High payoffs result from a well-coordinated execution of strategy that is also well suited to the organizational context. This chapter was originally published as Chapter 9 of 'Handbook of Leadership Theory and Practice: A Harvard Business School Centennial Colloquium.' This chapter is excerpted from ‘Handbook of Leadership Theory and Practice: A Harvard Business School Centennial Colloquium'.