This is all, now, well known-and a very nice presentation is provided by Steven Weinberg in the introductory chapter to his textbook, ``The quantum theory of fields'', vol. 1. It's not correct that the Copenhagen interpretation of non-relativistic quantum mechanics emphasizes the role of any observer in particular, just the entanglement between observer and observed system. And it's completely straightforward how to deal with such systems. 

Stam,

How to deal with the observer (i.e. the experimenter) degrees of freedom ? If you identify experimenter with the experimental apparatus, then the problems shifts one step further. Where does the collapse occur? 

Taking it to the brink of psychology, von Neumann tells us that the ABSTRACT EGO of the experimenter collapses the wave function with the rise of definite knowledge of the state of the system. Heisenberg (1958) agreed with this view.

Taking it to its physiological extreme, Penrose-Hameroff tell us that it occurs in the microtubules in the brain.

These are extremely important questions and Alapati V. Rao needs to be congratulated for putting up this question.

You may see the psychophysical interpretation in this regard on my RG page.

Regards

How does the "collapse of the wave function" fit into the theory of Block Time, which is implied by the Theory of Relativity?  If there is no flow of time what does Collapse mean?  Schrödinger's original wave function did not contain a reference to time, only to spatial dimensions; it defines the probability of finding a particle at particular coordinates, or rather, it specifies the partial differential equations that define the change in probability between different coordinates. From this perspective it looks as if Man has introduced "time" into the equations and is now worried about the consequences.