When we examine people’s decisions from the perspective of their identities and social norms, we get new answers to many different economic questions. Who people are and how they think of themselves is key to the decisions that they make. Their identities and norms are basic motivations. We call this approach identity economics. ...This seems to tie in with some of my recent thoughts about the role of principles — as opposed to rational "calculation" — in economic and political behavior.
But with identity economics it all makes sense, and we gain an entirely new perspective on work incentives, not just in the military, but in all pursuits. In organizations that function well, employees identify with their work and their organizations. If employees feel more like insiders – a key purpose of military rituals – there is little need for incentive pay or pay-for-performance schemes. The military changes the identity of its recruits, inculcating in them values such as duty and service.
(via Mark Thoma)