How Do We Teach Economics?

The teaching of economics in Hungary has changed fundamentally since the 1980s for two main reasons. Firstly, the transformation towards a market economy has changed the needs of students, and secondly, there has been a move to harmonise Hungarian methods of teaching with Western ones. The number of institutions involved in economics education has increased substantially to meet new demand and these institutions offer a wide range of programs, though the topics covered tend to be more practically based than previously. A survey of students set out to evaluate economics as a profession by investigating social esteem, financial compensation, career prospects, and mobility within the profession. Amongst full-time students there was a strong correlation between the parents' background and the students' career prospects. Full-time students were more optimistic than part-time students, although the latter had a higher opinion of the academic level of their educational establishments. A second survey, this time of economics teachers, revealed the disturbing fact that teachers rated themselves in the last but one position according to social esteem and felt that society had a poor opinion of them. Fifty percent expressed a desire to leave the profession and 70% supplemented their income with work outside their school, rarely within the domain of economics. The final part of the research analysed the situation in private educational institutions, nothing that unemployment retraining grants offered by the Ministry of Labour have created an incentive for private entrepreneurs to organise courses and that the quality of these courses varies considerably.

A Comparative Study of Central and Eastern European Social Policy Concernig Mental Disability

The main goal of this project was to identity whether an imported system of social policy can be suitable for a host country, and if not why not. Romanian social policy concerning the mentally disabled represents a paradoxical situation in that while social policy is designed to ensure both an institutional structure and a juridical environment, in practice it is far from successful. The central question which Ms. Ciumageanu asked therefore was whether this failure was due to systemic factors, or whether the problem lay in reworking an imported social policy system to meet local needs. She took a comparative approach, also considering both the Scandinavian model of social policy, particularly the Danish model which has been adopted in Romania, and the Hungarian system, which has inherited a similar universal welfare system and perpetuated it to some extent. In order to verify her hypothesis, she also studied the transformation of the welfare system in Great Britain, which meant a shift from state responsibility towards community care. In all these she concentrated on two major aspects: the structural design within the different countries and, at a micro level, the societal response. Following her analyses of the various in the other countries concerned, Ms. Ciumageanu concluded that the major differences lie first in the difference between the stages of policy design. Here Denmark is the most advanced and Romania the most backwards. Denmark has a fairly elaborate infrastructure, Britain a system with may gaps to bridge, and Hungary and Romania are struggling with severe difficulties owing both to the inherited structure and the limits imposed by an inadequate GDP. While in Denmark and Britain, mental patients are integrated into an elaborate system of care, designed and administered by the state (in Denmark) or communities (in Britain), in Hungary and Romania, the state designs and fails to implement the policy and community support is minimal, partly due to the lack of a fully developed civil society. At the micro level the differences are similar. While in Denmark and Britain there is a consensus about the roles of the state and of civil societies (although at different levels in the two countries, with the state being more supportive in Denmark), in Romania and to a considerable extent in Hungary, civil society tends to expect too much from the state, which in its turn is withdrawing faster from its social roles than from its economic ones, generating a gap between the welfare state and the market economy and disadvantaging the expected transition from a welfare state to a welfare society and, implicitly, the societal response towards those mentally disabled persons in it. On an intermediate level, the factors influencing social policy as a whole were much the same for Hungary and Romania. Economic factors include the accumulated economic resources of both state and citizens, and the inherited pattern of redistribution, as well as the infrastructure; institutional resources include the role of the state and the efficiency of the state bureaucracy, the strength and efficiency of the state apparatus, political stability and the complexity of political democratisation, the introduction of market institutions, the strength of civil society and civic sector institutions. From the standpoint of the societal response, some factors were common to all countries, particularly the historical context, the collective and institutional memories and established patterns of behaviour. In the specific case of Romania, general structural and environmental factors - industrialisation and forced urbanisation - have had a definite influence on family structure, values and behavioural patterns. The analysis of Romanian social policy revealed several causes for failure to date. The first was the instability of the policy and the failure to consider the structural network involved in developing it, rather than just the results obtained. The second was the failure to take into account the relationship between the individual and the group in all its aspects, followed by the lack of active assistance for prevention, re-socialisation or professional integration of persons with mental disabilities. Finally, the state fails to recognise its inability to support an expensive psychiatric enterprise and does not provide any incentive to the private sector. This creates tremendous social costs for both the state and the individual. NGOs working in the field in Romania have been somewhat more successful but are still limited by their lack of funding and personnel and the idea of a combined system is as yet utopian in the circumstances in the country.

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.