An Economic Perspective on Leadership

By: Mark A. Zupan

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Synopsis: This chapter seeks to advance our understanding of leadership and to show that it has the potential to be a science as well as an art. The author demonstrates how effective leaders make decisions by solving the classic prisoner's dilemma-a concept borrowed from economics. The prisoner's dilemma, simply put, is the choice between turning state's evidence against your partner in crime, confessing, and getting a lighter punishment (while your partner gets the maximum punishment), or risking the possibility that your partner will confess first, thereby condemning you to the maximum punishment. The ability to recast the prisoner's dilemma from a one-shot game to an indefinitely repeated game provides a key insight into the leader's role. Enabling members of an organization to move from what the author calls an "inferior equilibrium" (the one-shot game) to a "superior equilibrium" (the indefinitely repeated game) requires the leader to focus on six essential tasks: vision, enrollment, commitment, integrity, communication, and authenticity. This chapter was originally published as Chapter 10 of "Handbook of Leadership Theory and Practice: A Harvard Business School Centennial Colloquium."