Suppose my competitor has just built a factory on land they are renting for $X. I offer $X+1 rent for a day, then demolish their factory, then give the land back to them to rent for $X.
You mention that the exact details will need to be hashed out separately, but I don’t think that they can prevent this problem, because it derives from asymmetry between renting being temporary but demolition being permanent.
For example, you might say that the original owner can just outbid me. But I only need the land for the shortest available unit of time in order to destroy their factory and drive them out of business. Suppose that if this happens, I’ll gain 20% of the profits my competitor would have earned. So they’ll need to pay 20% of their profits for each time period that I can bid on the land.
Insurance doesn’t solve this either, because my competitor will still be paying the same cost in expectation, just to the insurance company.
This reminds me of the difficulty in doing any kind of Harbergerian transfer of domain names in cryptocurrency-related DNS or identity systems: the value to a malicious attacker of a domain name can vastly exceed any amount that the legitimate owner, who creates that value, can afford to pay. An attacker could afford to spend millions of dollars to seize ‘Coinbase.com’ for an hour (so as to MITM accounts+passwords, and thereby steal billions in account balances), while Coinbase itself cannot afford to spend millions per hour securing a domain name. The system operates as designed in transferring the domain name to the user who can extract the most value from the monopoly over the name, but that’s not the same thing as creating social value...
My proposed solution to both your problem and Richard’s, explained further in a separate comment, is that payment and transfer be separated by enough time to vacate amicably, or sue to enjoin transfer.
I think this can be resolved by working in terms of packages of property (in this case, uninterrupted ownership of the land), where the value can be greater than the sum of its parts. If someone takes a day of ownership, they have to be willing to pay in excess of the difference between “uninterrupted ownership for 5 years” and “ownership for the first 3 years and 2 days”, which could be a lot. Certainly this is a bit of a change from Harberger taxes / needs to allow people to put valuations on extended periods.
It also doesn’t really resolve Gwern’s case below, where the value to an actor of some property might be less than the amount of value they have custody over via that property.
That’s an interesting point I hadn’t considered at all—malicious destruction. The obvious answer is to “make that illegal”, which is a bit vague, but works well enough for things like insider trading.
An alternative would be to make a bid last a minimum length of time. So if I offer a ridiculous temporary price for the factory in order to destroy it, I’m going to have to pay that for an entire year, which will in most cases stop that being worth it.
The thing is, it doesn’t have to be a “ridiculous” price, it just needs to be more than what the competitor is currently paying EDIT: can sustainably pay. Imagine the cost to Apple of not being able to produce any smartphones for a year because a competitor had snatched a crucial factory—it’s probably orders of magnitude greater than the rental cost of all the land they use. And remember that the attacker only has to remove one piece of the supply chain, whereas the defender has to ensure that they maintain control over every piece of infrastructure needed.
Given this disparity, you wouldn’t even need malicious destruction, you could just snatch pieces of land from under them and wait it out.
(Re tit-for-tat, see patent wars—these things do happen!)
it just needs to be more than what the competitor is currently paying
It needs to be higher than what the competitor is willing to pay since they can always counter offer.
You could also require that a bid to take over a piece of land stands for at least a length of time equal to K * (total value of current property / bid rental price) for some K, meaning that a takeover would have to be serious before you risked doing this, as you stand to have to pay an amount of money equal to K * total value of current property if nobody outbids you.
It needs to be higher than what the competitor is willing to pay since they can always counter offer.
Agreed. My previous comment was incorrect; it should have been “it just needs to be more than what it’s sustainable for the competitor to pay”. The underlying problem is still that the cost of disruption may be far higher than the sustainable price to rent each piece of land. So if I gain a billion dollars from Apple’s supply chains being cut, then I can bid up to a billion dollars for each piece of land used in their supply chain, and the only way Apple can stop me is paying a billion dollars of rent per piece of land.
You could also require that a bid to take over a piece of land stands for at least a length of time equal to K * (total value of current property / bid rental price) for some K
How would we determine the total value of the current property?
How would we determine the total value of the current property?
I don’t mind using manual assessment for this, since:
a) the exact value doesn’t matter all that much.
b) it only needs to be done when you want to drop your bid, and the previous owner claims you haven’t owned it long enough. So in most cases it won’t be necessary.
I think in the typical Harberger scheme, in order to compel transfer of property rights, you pay the entire capital cost of the property, not some portion as a temporary rent.
I also I expect in practice that kind of thing wouldn’t be super common, because the tit for tat nature is such its just not really worth it for anyone to get into such a war. It also would look extremely bad for the company.
So I reckon this isn’t going to be very common to start off with, and even some conservative laws to increase the risk of doing this would be enough to stop it occurring basically ever. Sure there’ll be that one case everybody talks about, but it wont actually happen in practice.
Suppose my competitor has just built a factory on land they are renting for $X. I offer $X+1 rent for a day, then demolish their factory, then give the land back to them to rent for $X.
You mention that the exact details will need to be hashed out separately, but I don’t think that they can prevent this problem, because it derives from asymmetry between renting being temporary but demolition being permanent.
For example, you might say that the original owner can just outbid me. But I only need the land for the shortest available unit of time in order to destroy their factory and drive them out of business. Suppose that if this happens, I’ll gain 20% of the profits my competitor would have earned. So they’ll need to pay 20% of their profits for each time period that I can bid on the land.
Insurance doesn’t solve this either, because my competitor will still be paying the same cost in expectation, just to the insurance company.
This reminds me of the difficulty in doing any kind of Harbergerian transfer of domain names in cryptocurrency-related DNS or identity systems: the value to a malicious attacker of a domain name can vastly exceed any amount that the legitimate owner, who creates that value, can afford to pay. An attacker could afford to spend millions of dollars to seize ‘Coinbase.com’ for an hour (so as to MITM accounts+passwords, and thereby steal billions in account balances), while Coinbase itself cannot afford to spend millions per hour securing a domain name. The system operates as designed in transferring the domain name to the user who can extract the most value from the monopoly over the name, but that’s not the same thing as creating social value...
My proposed solution to both your problem and Richard’s, explained further in a separate comment, is that payment and transfer be separated by enough time to vacate amicably, or sue to enjoin transfer.
I think this can be resolved by working in terms of packages of property (in this case, uninterrupted ownership of the land), where the value can be greater than the sum of its parts. If someone takes a day of ownership, they have to be willing to pay in excess of the difference between “uninterrupted ownership for 5 years” and “ownership for the first 3 years and 2 days”, which could be a lot. Certainly this is a bit of a change from Harberger taxes / needs to allow people to put valuations on extended periods.
It also doesn’t really resolve Gwern’s case below, where the value to an actor of some property might be less than the amount of value they have custody over via that property.
I don’t think those are separate things? The value of a roof is the value of everything underneath it when it rains.
That’s an interesting point I hadn’t considered at all—malicious destruction. The obvious answer is to “make that illegal”, which is a bit vague, but works well enough for things like insider trading.
An alternative would be to make a bid last a minimum length of time. So if I offer a ridiculous temporary price for the factory in order to destroy it, I’m going to have to pay that for an entire year, which will in most cases stop that being worth it.
I definitely need to think about that more!
The thing is, it doesn’t have to be a “ridiculous” price, it just needs to be more than what the competitor
is currently payingEDIT: can sustainably pay. Imagine the cost to Apple of not being able to produce any smartphones for a year because a competitor had snatched a crucial factory—it’s probably orders of magnitude greater than the rental cost of all the land they use. And remember that the attacker only has to remove one piece of the supply chain, whereas the defender has to ensure that they maintain control over every piece of infrastructure needed.Given this disparity, you wouldn’t even need malicious destruction, you could just snatch pieces of land from under them and wait it out.
(Re tit-for-tat, see patent wars—these things do happen!)
It needs to be higher than what the competitor is willing to pay since they can always counter offer.
You could also require that a bid to take over a piece of land stands for at least a length of time equal to K * (total value of current property / bid rental price) for some K, meaning that a takeover would have to be serious before you risked doing this, as you stand to have to pay an amount of money equal to K * total value of current property if nobody outbids you.
Agreed. My previous comment was incorrect; it should have been “it just needs to be more than what it’s sustainable for the competitor to pay”. The underlying problem is still that the cost of disruption may be far higher than the sustainable price to rent each piece of land. So if I gain a billion dollars from Apple’s supply chains being cut, then I can bid up to a billion dollars for each piece of land used in their supply chain, and the only way Apple can stop me is paying a billion dollars of rent per piece of land.
How would we determine the total value of the current property?
I don’t mind using manual assessment for this, since:
a) the exact value doesn’t matter all that much. b) it only needs to be done when you want to drop your bid, and the previous owner claims you haven’t owned it long enough. So in most cases it won’t be necessary.
I think in the typical Harberger scheme, in order to compel transfer of property rights, you pay the entire capital cost of the property, not some portion as a temporary rent.
I also I expect in practice that kind of thing wouldn’t be super common, because the tit for tat nature is such its just not really worth it for anyone to get into such a war. It also would look extremely bad for the company.
So I reckon this isn’t going to be very common to start off with, and even some conservative laws to increase the risk of doing this would be enough to stop it occurring basically ever. Sure there’ll be that one case everybody talks about, but it wont actually happen in practice.
If anything, it’ll be more common for the previous owner to trash the place on their way out with some excuse for avoiding legal damages.