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Incentives and Institutions

by Serguey Braguinsky, Grigory Yavlinsky, Serguey Braguinsky, etc.

Buy the book: Serguey Braguinsky. Incentives and Institutions

Release Date: 28 February, 2000

Edition: Hardcover


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Buy the book: Serguey Braguinsky. Incentives and Institutions

this is an economic work of art!

I had the extreme pleasure to read this presentation on the overall situation,insight,and ways to solve the questions surrounding the ever-so inpertainant russian economy
I also will tell you that anyone who wants to have an understandig of what is in the mind-set of russian economists and reformists,then please,take the time to invest in this fine
literary work.
grigory a yavlinsky has accomplished yet another difficult task-
and he is,I think(by the reading material that I have read)will be and should be the answer to rebuilding the vast post-soviet economy's sectors,inside and out,this,among other things, is the true way to russian financial security,and this book is definitly the "bible" of works surrounding the russian economy.


What is to be done? How to do it?

Yavlinsky warns the reader at the outset of this approach to the Russian transition that the methodology of Incentives and Institutions is more theoretical (mathematical) than his previous works on the Russian transition like 500 Days (1992). The problem in Russia hinges on prohibitive distancing of "owner" (state) control from the management in the Soviet system discussed in Part One, and the conflict of interest of insider control since privatization discussed in Part Two. Part one proposes that: 1) Hierarchical property rights are incompatible with democracy, and 2) Hierarchical property rights and innovations under an "isolated dictator" is incompatible with market allocation of capital. The second requires dictatorial isolation ex ante and ex post in that he never observes the "price." This seems a rather na�ve and strict assumption. Part two discusses the path dependence of current insider ownership and its consequences. In both cases the problem is one of incentive compatibility for managers faced with opportunities in the official and unofficial sectors.

Part Three takes these intuitions and presents ideas and proposals for improving the situation. This section focuses on social contract, democratic efficacy, institutional development, and federal decentralization. First they claim "the collapse of communism, caused as it was by the path-dependent spontaneous process, has resulted in the entrenchment of a socioeconomic paradigm that effectively blocks further movement in the direction of a conventional market economy." The social contract of the old system is the paternalism of serfdom followed by communism's "de facto serfdom." The new contract is corporatism at the top, and Hobbesian jungle at the bottom. Political democracy, foreign investment, and market economy are Braguinsky and Yavlinsky's solutions. The failure of this is that, while they get to some of the core of the problem, the "solutions" are self-evident and address "What is to be done?" when the real question is "How to do it?"

Secondly, the authors claim that democracy is not only compatible with reform, but necessary in Russia because of Communism's involvement in economics and politics. The tilt in that balance of power burned both bridges. Why is this not the case in China? They claim that liberalization was not a calculated process as in China (or during NEP in Russia). Another claim is that models of government failure require irrational voters, lack of competition or prohibitive transaction costs. However failed reform is analytically compatible with excessive competition, particularly if it is among reform groups.

Third, they emphasize the role of institutions in competition and eventual growth. They suggest that a "Federal Property Protection Service" form to enforce private property rights directly with firms rather than intermediating government, bureaucracy and industry. This service interacts with firms and is (loosely) accountable to the government. The suggestion is that for a flat fee this FPPS will provide property protection to those who pay. But this sits on a razor's edge. On the one side, the question is of what happens to those who cannot pay the flat fee, and on the other, if it is affordable to everyone, how the service will cover its expenses.

Fourth, they discuss proposals for the decentralization and governmental integrity. As much as the authors beg not to compare Russia to China, their proposals for decentralization and parallel what is done in China with TVEs. Decentralization would be compatible with the FPPS only if special interests in that area do not represent "too large" a share of the total area income. Coalitions of regional enforcement services would form to avoid size bias and allow local FPPS to self-insure against idiosyncratic differences costs and revenues. This scheme relies on the practicality of the FPPS.

While this book ventures to areas that are only beginning to be economically analyzed, it focuses on what is wrong, and what is to be done, not really providing practical, realistic solutions for how to accomplish the goals of transition. The answer lies not in theory, but in the real cultural, social, and economic realities of Russia today and how specific organizations can arise from the norms that are accepted and practiced in Russia.


Nizhniy Novgorod

© FAB Russia, 2003-2005

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