Compensation, Incentives and Risk: Economic Theory and Russian Practise

Mr. Pechersky set out to examine a specific feature of the employer-employee relationship in Russian business organisations. He wanted to study to what extent the so-called "moral hazard" is being solved (if it is being solved at all), whether there is a relationship between pay and performance, and whether there is a correlation between economic theory and Russian reality. Finally, he set out to construct a model of the Russian economy that better reflects the way it actually functions than do certain other well-known models (for example models of incentive compensation, the Shapiro-Stiglitz model etc.). His report was presented to the RSS in the form of a series of manuscripts in English and Russian, and on disc, with many tables and graphs. He begins by pointing out the different examples of randomness that exist in the relationship between employee and employer. Firstly, results are frequently affected by circumstances outside the employee's control that have nothing to do with how intelligently, honestly, and diligently the employee has worked. When rewards are based on results, uncontrollable randomness in the employee's output induces randomness in their incomes. A second source of randomness involves the outside events that are beyond the control of the employee that may affect his or her ability to perform as contracted. A third source of randomness arises when the performance itself (rather than the result) is measured, and the performance evaluation procedures include random or subjective elements. Mr. Pechersky's study shows that in Russia the third source of randomness plays an important role. Moreover, he points out that employer-employee relationships in Russia are sometimes opposite to those in the West. Drawing on game theory, he characterises the Western system as follows. The two players are the principal and the agent, who are usually representative individuals. The principal hires an agent to perform a task, and the agent acquires an information advantage concerning his actions or the outside world at some point in the game, i.e. it is assumed that the employee is better informed. In Russia, on the other hand, incentive contracts are typically negotiated in situations in which the employer has the information advantage concerning outcome. Mr. Pechersky schematises it thus. Compensation (the wage) is W and consists of a base amount, plus a portion that varies with the outcome, x. So W = a + bx, where b is used to measure the intensity of the incentives provided to the employee. This means that one contract will be said to provide stronger incentives than another if it specifies a higher value for b. This is the incentive contract as it operates in the West. The key feature distinguishing the Russian example is that x is observed by the employer but is not observed by the employee. So the employer promises to pay in accordance with an incentive scheme, but since the outcome is not observable by the employee the contract cannot be enforced, and the question arises: is there any incentive for the employer to fulfil his or her promises? Mr. Pechersky considers two simple models of employer-employee relationships displaying the above type of information symmetry. In a static framework the obtained result is somewhat surprising: at the Nash equilibrium the employer pays nothing, even though his objective function contains a quadratic term reflecting negative consequences for the employer if the actual level of compensation deviates from the expectations of the employee. This can lead, for example, to labour turnover, or the expenses resulting from a bad reputation. In a dynamic framework, the conclusion can be formulated as follows: the higher the discount factor, the higher the incentive for the employer to be honest in his/her relationships with the employee. If the discount factor is taken to be a parameter reflecting the degree of (un)certainty (the higher the degree of uncertainty is, the lower is the discount factor), we can conclude that the answer to the formulated question depends on the stability of the political, social and economic situation in a country. Mr. Pechersky believes that the strength of a market system with private property lies not just in its providing the information needed to compute an efficient allocation of resources in an efficient manner. At least equally important is the manner in which it accepts individually self-interested behaviour, but then channels this behaviour in desired directions. People do not have to be cajoled, artificially induced, or forced to do their parts in a well-functioning market system. Instead, they are simply left to pursue their own objectives as they see fit. Under the right circumstances, people are led by Adam Smith's "invisible hand" of impersonal market forces to take the actions needed to achieve an efficient, co-ordinated pattern of choices. The problem is that, as Mr. Pechersky sees it, there is no reason to believe that the circumstances in Russia are right, and the invisible hand is doing its work properly. Political instability, social tension and other circumstances prevent it from doing so. Mr. Pechersky believes that the discount factor plays a crucial role in employer-employee relationships. Such relationships can be considered satisfactory from a normative point of view, only in those cases where the discount factor is sufficiently large. Unfortunately, in modern Russia the evidence points to the typical discount factor being relatively small. This fact can be explained as a manifestation of aversion to risk of economic agents. Mr. Pechersky hopes that when political stabilisation occurs, the discount factors of economic agents will increase, and the agent's behaviour will be explicable in terms of more traditional models.

Problem of Tragedy and Tragic Consciousness in Russia at the turn of the 19th Century

This project intertwines philosophical and historico-literary themes, taking as its starting point the concept of tragic consciousness inherent in the epoch of classicism. The research work makes use of ontological categories in order to describe the underlying principles of the image of the world which was created in philosophical and scientific theories of the 17th century as well as in contemporary drama. Using these categories brought Mr. Vilk to the conclusion that the classical picture of the world implied a certain dualism; not the Manichaean division between light and darkness but the discrimination between nature and absolute being, i.e. God. Mr. Vilk begins with an examination of the philosophical essence of French classical theatre of the XVII and XVIII centuries. The history of French classical tragedy can be divided into three periods: from the mid 17th to early 19th centuries when it triumphed all over France and exerted a powerful influence over almost all European countries; followed by the period of its rejection by the Romantics, who declared classicism to be "artificial and rational"; and finally our own century which has taken a more moderate line. Nevertheless, French classical tragedy has never fully recovered its status. Instead, it is ancient tragedy and the works of Shakespeare that are regarded to be the most adequate embodiment of the tragic. Consequently they still provoke a great number of new interpretations ranging from specialised literary criticism to more philosophical rumination. An important feature of classical tragedy is a system of rules and unities which reveals a hidden ontological structure of the world. The ontological picture of the dramatic world can be described in categories worked out by medieval philosophy - being, essence and existence. The first category is to be understood as a tendency toward permanency and stability (within eternity) connected with this or that fragment of dramatic reality. The second implies a certain set of permanent elements that make up the reality. And the third - existence - should be understood as "an act of being", as a realisation of permanently renewed processes of life. All of these categories can be found in every artistic reality but the accents put on one or another and their interrelations create different ontological perspectives. Mr. Vilk plots the movement of thought, expressed in both philosophical and scientific discourses, away from Aristotle's essential forms, and towards a prioritising of existence, and shows how new forms of literature and drama structured the world according to these evolving requirements. At the same time the world created in classical tragedy fully preserves another ontological paradigm - being - as a fundamental permanence. As far as the tragic hero's motivations are concerned this paradigm is revealed in the dedication of his whole self to some cause, and his oath of fidelity, attitudes which shape his behaviour. It may be the idea of the State, or personal honour, or something borrowed from the emotional sphere, passionate love. Mr. Vilk views the conflicting ambivalence of existence and being, duty as responsibility and duty as fidelity, as underlying the main conflict of classical tragedy of the 17th century. Having plotted the movement of the being/existence duality through its manifestations in 17th century tragedy, Mr. Vilk moves to the 18th century, when tragedy took a philosophical turn. A dualistic view of the world became supplanted by the Enlightenment idea of a natural law, rooted in nature. The main point of tragedy now was to reveal that such conflicts as might take place had an anti-rational nature, that they arose as the result of a kind of superstition caused by social reasons. These themes Mr. Vilk now pursues through Russian dramatists of the 18th and early 19th centuries. He begins with Sumarakov, whose philosophical thought has a religious bias. According to Sumarakov, the dualism of the divineness and naturalness of man is on the one hand an eternal paradox, and on the other, a moral challenge for humans to try to unite the two opposites. His early tragedies are not concerned with social evils or the triumph of natural feelings and human reason, but rather the tragic disharmony in the nature of man and the world. Mr Vilk turns next to the work of Kniazhnin. He is particularly keen to rescue his reputation from the judgements of critics who accuse him of being imitative, and in order to do so, analyses in detail the tragedy "Dido", in which Kniazhnin makes an attempt to revive the image of great heroes and city-founders. Aeneas represents the idea of the "being" of Troy, his destiny is the re-establishment of the city (the future Rome). The moral aspect behind this idea is faithfulness, he devotes himself to Gods. Dido is also the creator of a city, endowed with "natural powers" and abilities, but her creation is lacking internal stability grounded in "being". The unity of the two motives is only achieved through Dido's sacrifice of herself and her city to Aeneus. Mr Vilk's next subject is Kheraskov, whose peculiarity lies in the influence of free-mason mysticism on his work. This section deals with one of the most important philosophical assumptions contained in contemporary free-mason literature of the time - the idea of the trinitarian hierarchy inherent in man and the world: body - soul - spirit, and nature - law - grace. Finally, Mr. Vilk assess the work of Ozerov, the last major Russian tragedian. The tragedies which earned him fame, "Oedipus in Athens", "Fingal" and "Dmitri Donskoi", present a compromise between the Enlightenment's emphasis on harmony and ontological tragic conflict. But it is in "Polixene" that a real meeting of the Russian tradition with the age-old history of the genre takes place. The male and female characters of "Polixene" distinctly express the elements of "being" and "existence". Each of the participants of the conflict possesses some dominant characteristic personifying a certain indispensable part of the moral world, a certain "virtue". But their independent efforts are unable to overcome the ontological gap separating them. The end of the tragedy - Polixene's sacrificial self-immolation - paradoxically combines the glorification of each party involved in the conflict, and their condemnation. The final part of Mr. Vilk's research deals with the influence of "Polixene" upon subsequent dramatic art. In this respect Katenin's "Andromacha", inspired by "Polixene", is important to mention. In "Andromacha" a decisive divergence from the principles of the philosophical tragedy of Russian classicism and the ontology of classicism occurs: a new character appears as an independent personality, directed by his private interest. It was Katenin who was to become the intermediary between Pushkin and classical tragedy.