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.

Identity, incentives and the value of information

We examine the impact of identity preferences on the interrelation between incentives and performance measurement. In our model, a manager identifies with an organization and loses utility to the extent that his actions conflict with effort-standards issued by the principal. Contrary to prior arguments in the literature, we find conditions under which a manager who identifies strongly with the organization receives stronger incentives and faces more performance evaluation reports than a manager who does not identify with the organization. Our theory predicts that managers who experience events that boost their identification with the firm can decrease their effort in short-term value creation. We also find that firms are more likely to employ less precise but more congruent performance measures, such as stock prices, when contracting with managers who identify little with the organization. In contrast, they use more precise but less congruent measures, such as accounting earnings, when contracting with managers who identify strongly with the firm.

Use of a hand-assisted laparoscopic surgical technique for closure of an extensive mesojejunal rent in a horse

CASE DESCRIPTION A 7-year-old 573-kg (1,261 -lb) Swiss Warmblood gelding was evaluated because of signs of acute abdominal pain. CLINICAL FINDINGS Physical examination revealed a markedly distended abdomen with subjectively reduced borborygmi in all abdominal quadrants. A large, gas-distended viscus was present at the pelvic brim preventing complete palpation of the abdomen per rectum. Ultrasonographic evaluation could not be safely performed in the initial evaluation because of severe signs of abdominal pain. TREATMENT AND OUTCOME Ventral midline celiotomy was performed, and right dorsal displacement of the ascending colon was corrected. Progressive signs of abdominal pain after surgery prompted repeat ventral midline celiotomy, and small intestinal incarceration in a large, radial mesojejunal rent was detected. The incarceration was reduced, but the defect was not fully accessible for repair via the celiotomy. Repair of the mesenteric defect was not attempted, and conservative management was planned after surgery; however, signs of colic returned. A standard laparoscopic approach was attempted from both flanks in the standing patient, but the small intestine could not be adequately mobilized for full evaluation of the rent. Hand-assisted laparoscopic surgery (HALS) allowed identification and reduction of jejunal incarceration and repair of the mesenteric rent. Although minor ventral midline incisional complications were encountered, the horse recovered fully. CLINICAL RELEVANCE HALS techniques should be considered for repair of mesenteric rents in horses. In the horse of this report, HALS facilitated identification, evaluation, and repair of a large radial mesenteric rent that was not accessible from a ventral median celiotomy.

Dynamic Activity-Related Incentives for Physical Activity.

The present studies adopted the theoretical framework of activity- and purpose-related incentives (Rheinberg, 2008) to explain the maintenance of physical activity. We hypothesized that activity-related incentives (e.g., “fun”) increase more than purpose-related incentives (e.g., “health”) between the initiation and maintenance phase of physical activity. Additionally, change in activity-related incentives was hypothesized to be a better predictor of maintenance of physical activity than change in purpose-related incentives. Two correlative field studies with rehabilitation patients (Study 1) and Nordic Walkers (Study 2) were conducted to test the hypotheses. Participants’ incentives of physical activity were measured at the beginning of exercising and two weeks (Study 1; T2) and three months (Study 2; T2) later. At T2, participants were asked for their current physical activity. Both studies showed a greater change of activity-related incentives than purpose-related incentives. Furthermore, change in activity-related incentives was more predictive of the maintenance of physical activity than change in purpose-related incentives. The results showed the important role of activity-related incentives in maintenance of physical activity. The theoretical contribution to physical activity maintenance research and practical implications for health promotion programs were discussed.

Strategic Incentives in Unconventional Electoral Systems: Introduction to the Special Issue

The study of strategic behaviour and the impact of institutions on elections has mainly focused on simple and conventional electoral systems: list-proportional electoral systems (PR) and the plurality vote. Less conventional systems are not on the agenda of comparative studies, even though no less than 30% of countries use unconventional electoral systems for their national parliamentary elections, such as the Single Transferable Vote, PR with majority bonuses, or mixed electoral systems. Often, they provide for unusual combinations of different institutional incentives, and hence to particular actor strategies.

Sustaining the Economic Rent of Oceanic Resources: The Case of Marine Protected Areas

This paper investigates economic aspects of marine protected areas (MPAs) that are closely related to the underlying marine biota. Many marine scientists recognize that enough is now known about the marine biology for the scientific siting of MPAs to protect marine environments that create associated economic values. Marine scientists have identified several objectives of MPAs. These include protection of genetic and biodiversity, increase in population levels and structures (e.g., age, size, fecundity), enrichment of ecosystems by promoting species interactions, and the protection of continental shelf landscapes from invasive human actions. Indeed, some marine scientists and fisheries economists view MPAs as an 'insurance policy' against over-fishing and other human uses of oceanic resources that have damaged so many of the world's fisheries. The economic analysis presented here pays attention to optimal zoning, policies to maintain sustainable economic rents, and the optimal policing of MPAs.