Incentives Matter, Soviet Edition

14 July 2010 at 3:12 pm Dick Langlois 3 comments

| Dick Langlois |

As economists like Benito Arruñada and Eric Hilt have shown, fishing and whaling have always used an incentive system in which crew members are paid a share of the profits of the voyage. Recall that Ishmael in Moby Dick contracted for a 300^th lay, a 300^th “part of the clear nett proceeds of the voyage, whatever that might eventually amount to.” This provides relatively high-powered incentives, in that it is a reward based on results, though it works only when team members can monitor each other easily and when the market for workers is competitive. (This contrasts with the reward system in, say, professional sports, where one is rewarded on the basis of one’s own performance rather than on that of the team. But that may be changing.)

I was surprised to discover that even Soviet factory ships used a similar system, as described in the Martin Cruz Smith novel Polar Star — a work of fiction but clearly well researched and probably accurate. “The Polar Star’s pay was shared on a coefficient from 2.55 shares for the captain to 0.8 share for a secondclass seaman. Then there was a polar coefficient of 1.5 for fishing in Arctic seas, a 10 percent bonus for one year’s service, a 10 percent bonus for meeting the ship’s quota, and a bonus as high as 40 percent for overfulfilling the plan. The quota was everything. It could be raised or lowered after the ship left dock, but was usually raised because the fleet manager drew his bonus from saving on seamen’s wages. Transit time to the fishing grounds was set at so many days, and the whole crew lost money when the captain ran into a storm, which was why Soviet ships sometimes went full steam ahead through fog and heavy seas.”

Presumably, however, the share was not of profit but of some fixed amount. The incentive came from the quota bonuses, which, as the novel details, were subject to political manipulation. Interesting nonetheless that the system used incentives of the broadly traditional kind, and that it explicitly rewarded workers differently for different skill level and status.

Entry filed under: - Langlois -, Business/Economic History, Food and Agriculture, Institutions.

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3 Comments Add your own

1. k | 14 July 2010 at 6:07 pm

The most important statistic in MLB are based on team effort . ERA and RBI depend on the team and the stadium. Pitchers with good era trump won games. Allegedly because a win is more luck or team influenced than ERA. But ERA is luck, a good defensive team , a big cold stadium and No Jim Joyce around.Your RBI depend on your teammates been on base. MVP goes ,usually ,for the winning team best player.
The new statistics ( they began been developed in 1973), not yet mainstream or recognized outside blogs, Whip, war,VOR Babip, ERA+, try to measure individual effort
2. Dick Langlois | 15 July 2010 at 8:16 am

Thanks for the baseball example. Baseballi s also a bit like the Soviet system in that there are bonuses for making the playoffs and the World Series. In the WS, the winning team gets 36% of the gate of the first 4 games — so as not to create an incentive to lengthen the Series — which gets distributed by a team vote. The team gives out full shares, partial shares, and cash awards to coaches and staff as well as to players. In this sense, MLB is more egalitarian than Soviet factory ships. When the Red Sox won the WS in 2007, a share was worth about $300,000. The team voted 47 full shares, 14 partial shares, and 11 cash awards, which was considered extremely generous to the coaches and staff.

http://mlb.mlb.com/pa/info/faq.jsp#playoff

http://sports.espn.go.com/mlb/news/story?id=3128178
3. markets | 23 July 2010 at 4:49 am

i am going to marketing ran to evening
The team gives out full shares, partial shares, and cash awards to coaches and staff as well as to players. In this sense, MLB is more egalitarian than Soviet factory ships.