LEADERSHIP AND ECONOMIC THEORY

Abstract Although the phenomenon of leadership has attracted considerable attention in the humanities and social sciences, it has been severely neglected by economists. Hermalin (1998) has recently demonstrated that leadership can be accommodated within the rational behavior paradigm of mainstream economics through “leading by example”. However, the Hermalin model accords no role to the inspirational dimension of leadership. This paper seeks to extend the basic Hermalin model to enable it to allow followers to be responsive to “moral rhetoric” by leaders. We examine the influence of emotions, especially hope and disappointment, on decision making aimed at the realization of shared group goals. ∗∗ Dr Joe Wallis, Senior Lecturer, Department of Economics, Otago University, Dunedin, New Zealand. Brian Dollery is Professor of Economics at the University of New England, Australia and Visiting Foreign Scholar, Yokohama National University, Japan. Ho Chong Mun is Lecturer in the School of Science and Technology at Universiti Malaysia Sabah