1) The Problem 2) The Holdout Problem 3) Perpetual Auctions 4) The bypass by independence problem 5) Zero Tax Ceiling Intro 6) Zero Tax Ceiling 7) Inequality in the selling of CBs 8) Perpetual Auctions and Citizenship 9) Word of Caution and Conclusion
1) The Problem
To institute a country, a founder would need to buy a very large quantity of contiguous Citizens Bundles (CBs) and a very large quantity of contiguous properties. For this to happen, the founder would need to have a very long streak of successful transactions for properties and CBs without a single failure. To achieve this, under normal circumstances, would be nearly impossible. This post is about this problem and a proposed way to overcome it.
Swiss Cheese Countries
An alternative would be for founders to abandon the goal of a solid territory. They would just buy the CBs and properties that they could and create their countries around the land they were not able to clear. For example, if a farmer refused to sell her farm to a founder, the founder could just build his country around that farm. Since the founder failed to buy the farm, the farm would still be part of the adopting country’s territory; it would be a little dot of adopting country within the borders of the new country. This kind of scenario would be a burden to adopting countries and a strain on the relations between them and new countries (not to mention the costs to the people living on these islands of adopting country within new countries). Such circumstances would not be permitted in expevolu. To acquire independence rights, a founder would need to have a solid patch of land, with all its properties and CBs.
Since “Swiss cheese” countries would be prohibited in expevolu, we are back to the situation of a founder having to go through an enormous amount of transactions without a single failure in order to establish a new country.
This would be prohibitively difficult for most independence projects.
Transactions Fail
One of the issues here is that transactions, even mutually beneficial ones, sometimes fail. In trying to bargain for better prices, sometimes both parties of a potential transaction end up not reaching a deal.
If, for instance, the seller of a property has the wrong perception about how high a price a buyer is willing to pay, or the buyer has a wrong perception about how low a price he can get, the transaction may fail, even if it is mutually advantageous.
Since the number of transactions to create a country is enormous, some are bound to fail; and a single failure is enough to negate a whole project.
2) The Holdout Problem
The situation, however, is even worse because of something called “the holdout problem.” Here is a GPT-4 explanation of the concept:
In the world of land acquisition for large-scale projects, the holdout problem presents itself when an individual or a group of landowners, realizing the essential need of their land for the project’s success, demand a price far exceeding the market value.
Picture a situation where a corporation wants to build a new factory. To do so, they need to acquire a large contiguous piece of land made up of numerous smaller plots owned by different individuals. Each owner, knowing that without their specific plot the factory can’t be built, might hold out, refusing to sell unless they get a price significantly above the market rate. This is where the term “holdout problem” comes from.
Here’s an in-depth look at the holdout problem:
Context
The holdout problem is often seen in situations involving collective action, such as land assembly or infrastructure development, where a single project requires the aggregation of numerous separately owned pieces of property. A classic example is the construction of a railway line or highway that needs to pass through several privately owned lands.
Issue
The issue arises when one or more property owners refuse to sell at the offered price, holding out for a higher price. They can do this because they understand that their land is vital for the project, giving them considerable bargaining power. They essentially hold the project hostage, hoping to extract a higher payment from the buyer.
The holdout problem can lead to significant inefficiencies. For example, projects might be delayed or even abandoned because of one or more holdouts, which can result in considerable social and economic costs. Alternatively, projects might be rerouted or redesigned to avoid dealing with holdouts, but this can lead to suboptimal outcomes, such as less efficient transportation routes or increased costs.
(End of GPT-4 explanation)
Founders’ willingness to invest in new countries is related to both the probability that they will be able to establish their countries and the amount of value they would be able to extract from these countries.
Under normal property rules, property owners have the right to retain their properties independent of the offer made for the acquisition of those properties, they have the right to refuse to sell and keep them. This right of retention over their territorial rights makes the probability of a founder being able to acquire all the necessary rights to establish a country extremely low. It also means that any value founders expect to extract from new countries would tend to be captured by CB and property owners, further reducing founders’ incentives to invest.
Some sort of mechanism to deal with this issue is necessary; otherwise founders would not be able to get the required rights to create countries. This would drastically reduce the significance of expevolu; the system would fail in its most essential goal of allowing people to create new countries.
3) Perpetual Auctions
There are a few alternative ways to address the land (and CB) assembly problem. The ones I looked at were, in general, inadequate in important ways. However, there was one alternative, associated with economist Arnold Harberger [1], which I found quite reasonable.[2]
Here is a GPT-4 description:
Harberger, a renowned economist, proposed a rather radical model for property rights which aims to alleviate inefficiencies related to the holdout problem and promote a more effective allocation of resources.
The Model
This approach is often referred to as the “Harberger Tax” system, or “self-assessed property taxation.” Here’s how it works:
Self-Assessment: Every property owner is required to self-assess the value of their property and display this price publicly.
Taxation: Owners then pay a tax based on their self-assessed valuation. The tax rate could be determined by the government or relevant authorities. The revenue from this tax can be used to fund public goods or services, reduce other taxes, etc.
Sale Obligation: Crucially, the property must be up for sale at all times at its self-assessed price. This means that if anyone offers to buy the property at the stated price, the owner must sell it.
Implications and Goals
This mechanism has several significant implications and is designed to achieve specific goals:
Prevent Overvaluation: Since property owners have to pay a tax based on their self-assessed valuation, there’s a disincentive to overvalue their properties because it would lead to higher taxes.
Prevent Undervaluation: At the same time, owners can’t undervalue their properties too much to avoid taxes because they risk someone else buying their property at that undervalued price.
Promote Efficient Allocation: The model is intended to ensure that properties are more likely to end up in the hands of those who value them the most. This is because anyone who values the property more than the current self-assessed price can buy it and then set a new self-assessed price equal to their higher valuation.
Address the Holdout Problem: The Harberger Tax system can effectively eliminate the holdout problem. Since properties must be sold to any willing buyer at their self-assessed price, property owners can’t hold out for a higher price.
(End of GPT-4 explanation)
Expevolu would apply this solution to both properties and CBs.
1) Self-Assessment: Every property and CB owner would be required to self-assess the value of their property or CB and display this price publicly.
2) Taxation: Owners would then pay a tax based on their self-assessed valuation.
3) Sale Obligation: Crucially, every property and CB must be up for sale at all times at their self-assessed price. This means that if anyone offers to buy the property or CB at the stated price, the owner must sell it.
Country Creation Under Perpetual Auction
For the purpose of visualization, let’s bring up one of our fictitious square countries.
As usual, the black lines represent the borders of the adopting country, the red lines the borders of real estate properties, and the blue lines the CBs. The selected region indicates where a founder wants to create a country.
All properties and CBs would be always available for purchase in an electronic market.
In the tables below we can see the properties and CBs that fall within the selected region; beside each owners’ name is their self-assessed price.
Properties:
CBs:
In the ‘simplified expevolu’ model, presented in part I, the rules of property would be the ordinary ones prevalent in most countries. Therefore, most CBs and properties wouldn’t be for sale and founders would have to negotiate with each CB and property owner to buy their rights. Under the Perpetual Auction scheme, all rights would always be for sale and founders would be able to buy them all in a centralized digital market.
The transactions in the CB and real estate market in expevolu would need to be much faster than the transactions in regular real estate markets. The demands on the underlying infrastructure to carry out these transactions would be much larger. Transactions would have to be done fast, digitally and in a secure manner. I can’t imagine it working under the real estate transaction proceedings prevalent currently. Adopting countries would need to upgrade to more efficient ways of transacting territorial rights before the Perpetual Auction scheme is implemented.
A good way for founders to buy the necessary rights would be stealthily. They could buy all the required CBs, all properties and request independence in a single move. This way they would not disclose to CB and property owners their interest in the region. The rights owners would realize the interest in their assets only after they were already bought and the opportunity to raise their price lost.
Each property and CB owner whose assets are bought would automatically receive the price they had set for them, and their CBs or properties would be transferred to the buyer.
Once it is determined that a region will be made into an IZ, there is no need for the properties and CBs of that region to remain in the market. Therefore, both properties and CBs are removed from the market once founders, after having consolidated the necessary assets under their names, file for Independence Rights.
After founders file for Independence Rights, their chosen territory would not be made immediately available for them to establish their IZs. There would be a period to allow the people who live on the area to move out. Only after this period would founders be allowed to institute their IZs.
Right to Fraction Belongs to Real Estate Owners
In the previous example, there was no fragmentation of existing properties or CBs. The necessary properties and CBs fell completely and perfectly within the selected region. In practice, selected regions borders would cut through the middle of numerous CBs and properties, in a way that some bits of them would be in the selected regions and some bits out of the selected regions.
Selected area with its borders crossing numerous CBs and properties.
This being the case, maybe we should allow founders to buy only the bits of real estate and CB which fall in their selected territories, because they only need those parts. Allowing this, however, would lead to substantial problems.
Leaving CBs aside for a moment, let’s focus on real estate rights.
Imagine that you own a farm over which you perform some economic activity. The property has many different areas, which fulfill different, interdependent, tasks. If the system allowed buyers to buy whatever portion of a property they wanted, then they could disrupt your whole operation by buying a crucial area of your property.
This is a problem in and of itself, but there is an even worse problem. Allowing people to buy portions of properties in the auction market would present an opportunity for them to willingly disrupt real estate owners’ operations in hopes to get an advantage. People could buy tiny, but critical fractions of landowners’ properties and significantly raise the price of those bits in the auction market in hopes that the original owners would want to get them back. This would probably drastically reduce productivity in the areas available for independence, and disrupt people’s private lives as well.
Therefore, the right to divide properties in expevolu would be in the hands of the property owners. Founders would need to buy whole properties (or convince the owners of those properties to divide them neatly for them). After they buy the properties, they would then be allowed to divide them, using the parts they wanted to establish their IZs and putting the rest back for sale in the auction market.
CB Fractions
With regard to CBs, since they don’t grant power over land, this particular problem wouldn’t exist. So, maybe the best thing would be to allow buyers to buy exactly the portions they want, however, I am not sure (I haven’t thought much about this).
If founders are to be allowed to divide CBs in the act of buying, acquiring only the exact CB areas they want, then the system needs to be able to deal with that. I imagine something like the founder drawing his or her selected region on a digital map of the adopting country and the application determining what CBs and properties need to be bought and their price. The application would have to be able to divide CBs, calculate the prices of fractional CBs and carry out the transactions for these fractions (along with the transactions for the full CBs and properties).
Perpetual Auction wouldn’t be applied in cities
It is important to note that this system would be applied only to the regions available for independence. Properties in big cities, for instance, would not be under auction; the normal property legislation of the adopting country would be the one in effect on these areas.
Checkpoint (Natural point for a break)
4) The bypass by independence problem
The Perpetual Auction scheme prevents territorial rights owners from having the power to veto the sale of those rights. If territorial rights owners had the right to refuse selling, then founders would be incapable of acquiring the necessary rights, new countries wouldn’t arise and expevolu would lose almost all of its relevance.
One problem with the Perpetual Auction system as presently described is that people would be able to acquire veto power through independence, recreating the problem that the system is supposed to solve.
For example:
Let’s say an individual believes that a particular region within the adopting country is a great place for a country to be created. This person could, for instance, buy a small property and corresponding CB in the region, make the small bit of land he acquired independent and offer to sell it at 50 times the price he paid for it. Since his land is independent, he is excluded from the requirement of having to sell his land at his self-assessed price. He has veto power. With everyone being allowed to do the same thing the situation becomes very similar to the one that existed before the establishment of the Perpetual Auction system; only worse, because there would be a large number of tiny parasite IZs and a compelling reason to invade them.
To combat this problem, at this point in time, I only have a very blunt tool, but I hope better alternatives will be thought of in the future. The blunt tool is a very high tax on the creation of isolated small independent zones. People who’d want to create an isolated small IZ, would have to pay a very high tax.
(Small IZs in large clusters would be allowed, this will be discussed briefly.)
The tax, in practice, would be so high as to work as a prohibition of isolated small IZs. This is due to the fact that people could, instead of creating a small independent zone and paying an enormous tax, use the money that would be spent on the enormous tax to buy more land and CBs to create a much larger IZ. It would make little sense to create a small IZ, given this tax. However, having to pay a large tax to have something is better than being prohibited from having it all together, so if people for some reason, in some circumstances find that they’d prefer a small IZ and a large tax instead of a large IZ and no tax, they would have this option. Also, the tax provides a gradation that a prohibition doesn’t. The tax could be extremely high for very small IZs, but could become lower and lower as the size of the IZs to be established increases. The tax then, is intended as a prohibition to the implementation of small IZs, but offers some flexibility to larger IZs that a cruder prohibition wouldn’t.
Given the large tax on small isolated IZs, establishing the much smaller IZ1 would cost the same to the founder as establishing IZ2.
This solution of effectively prohibiting small IZs, at least at first glance, seems quite terrible. Maybe the most desirable characteristic of expevolu was to allow the test of different societal arrangements in small scale; if small independent zones are heavily taxed, then it looks like this very important function of expevolu is lost. This, however, is not the case. Although I do believe the heavy taxation solution is hindering to the creation of small zones, and I am hoping for a better solution to appear in the future, the solution still permits a large number of small zones to be created. The reason for this is that there are many ways a small zone can be established in expevolu other than the way it would be taxed. Here are some examples:
Small Zone Clusters Different founders that want to establish small zones may coordinate to join their zones together, in a way that the territory of all zones added exceeds the threshold of taxation. They could request the adopting country to create separate independence rights titles for each of the zones in the amalgamation, so that they are clearly recognized as independent from each other.
Cluster of small IZs.
Small zones near large zones Small zones founders may coordinate with big zones founders as well and follow the same process described above to get their small zone instituted without taxation.
Buying independent land from IZs Another solution would be for groups or individuals who want to establish small zones to buy the areas from already established IZs.
Semi independence in established IZs with strong property rights Other possibility would be to establish semi-independent regions, things like condominiums, in new countries. Some new countries may have “strong” private property rights, allowing people significant freedom over their properties. This allows for the existence of communities with different institutions than the ones of the country on which they are established. These communities may in practice be very similar to fully independent countries and their level of independence may be enough for many projects.[3]
In summary, although the option of heavily taxing isolated small IZs is not optimal, it doesn’t preclude the creation of small zones.
The specifics of this tax will be left open for now: what (in units of measure) is meant by ‘small’ in small zone, how the tax would be calculated, how the tax would decrease as the zones to be established increase—these questions will not be answered here. I don’t have good answers to them at this point. Hopefully we can get a community of people interested in expevolu in the future; contributing ideas and refining the system.
5) Zero Tax Ceiling Intro
The taxation of properties and CBs proposed in the previous section, the Harberger Tax system[4] , works well for properties, but as currently set, doesn’t work well for CBs.
The rights represented by CBs are, in practice, held by the governments of adopting countries. CBs don’t grant control of land to their holders. Since this is the case, one cannot produce with CBs. One cannot plant crops or raise cattle with CBs, for example, like one can with real estate rights, and this affects how CBs should be taxed.
Real estate rights give you the ability to use the land productively and use the production of the land to finance the tax. CBs doesn’t give you this ability. Here is an example to illustrate the difference:
A tax on the price of property looks like this:
Price of property: $100,000 Tax: 5% of price per year Average production per year: $20,000 Taxes payed: $5,000 per year Surplus per year: $15,000
A similar tax on CBs looks like this:
Price of CB: $100,000 Tax: 5% of price per year Average production per year: $0 Taxes payed: $5,000 per year Surplus per year: -$5,000
Under this scheme CBs would tend to have a low value, because to sustain the price of CBs for long periods, CB owners would have to pay a lot in taxes with no compensating income.
CB owners, then, would be strongly compelled to lower their prices in order to either pay less taxes or eliminate the taxes completely by selling their CBs. This would drastically reduce the benefit citizens from adopting countries would derive from CBs.
Additionally, the taxes prevent CB owners from holding their assets for long periods of time. It is quite likely that it would take time for large portions of an adopting country to be taken by new countries (if it ever happens at all). IZs could creep on the space of Adopting Countries gradually, through the years and decades. So, it would be in the interest of CB owners to be able to hold out for the long run, because the best selling opportunities may be way in the future. However, with the current taxing arrangement, keeping CBs for long is not feasible, at least not with adequate CB prices.
Since this would be a really bad outcome, some adjustments to the current system have to be made to prevent it.
6) Zero Tax Ceiling
One important thing to notice about the Harberger Tax as it is used in expevolu, is that it is used to drive behavior, not to collect funds. The purpose of the tax is to avoid the Holdout Problem; the tax is just a means to this end.[5]
With this in mind, my proposed solution to the problem is to exempt CB owners from taxation up to a CB price (per unit of measure). This threshold price will be referred to as zero tax ceiling. If the zero tax ceiling is $10,000 per hectare, for instance, citizens would be able to set this price per hectare to their CBs, or any price below it, and chill without having to pay taxes.
This would prevent the tax from improperly devaluing CBs and would allow CB owners to hold their CBs for extended periods of time. It would also continue to prevent the Holdout Problem, because high CB prices would still be taxed.
However, there is the problem of how to determine the value of this zero tax ceiling.
Who should define the zero tax ceiling and how to define it?
Defining this zero tax ceiling seems to require some amount of arbitrariness; there is no evident optimal value to use.
One way to determine it, would be to get some experts to set the ceiling; to get some economists to do it, for instance. This kind of arrangement tends to be distrusted. CB owners may believe that their CB prices are being mispriced either by incompetence or for personal gain and may reject this approach.[6]
The option I adopted is to let the CB owners vote on the value of the zero tax ceiling they want for themselves.[7] The zero tax ceiling would, then, be defined by referendum and would be changed periodically by future referendums. These referendums would be completely dissociated from the normal elections of democratic adopting countries. The voters in the referendums would be the CB owners and they would have voting power in proportion to their CB areas. The voting CB owners would include foreigner who hold CBs.
To illustrate the functioning of these referendums, imagine an adopting country which just completed the distribution of CBs. The country has one hundred citizens, each owning a CB of one hectare. In this initial phase of expevolu, since every citizen has the same CB area, every CB owner would have the same voting power.
As citizens buy and sell CBs, the voting power of each CB owner would vary in accordance with the size of their CB areas.
Maybe the underlying property rights price could be used as a proxy of CB value and serve as an anchor for determining the options to be given to voters. Let’s say the average price of real estate rights on the area available for independence is $10,000 per hectare. In this case, the options available for voters as the zero tax ceiling could be:
0.25 x $10,000 per hectare 0.5 x $10,000 per hectare $10,000 per hectare 2 x $10,000 per hectare 4 x $10,000 per hectare
The CB owners would vote in their preferred choices among these options.
(It is important to implement a fitting voting system for this referendum, because some voting systems would generate terribly inaccurate results.)
Wouldn’t everyone just vote to have the highest tax ceiling possible?
Problems of having a high tax ceiling:
For an individual, it would make sense to remove the constraints of the zero tax ceiling on him or her self by assigning to themselves an infinitely high ceiling. However, if you are voting for the zero tax ceiling not only of your CB, but also of the CBs neighboring yours, then this is a bad strategy.
If all your neighbors can put their price extremely high, then this would bring back the holdout problem and would devalue CBs, because founders would not be able to buy all the necessary contiguous CBs to create a unified IZ territory. CBs are valuable because of the IZs that can be created through them and the citizenship rights they provide, if founders can’t create IZs where your CB is located, a good chunk of its value is lost.
The tax helps coordinate the lowering of CB prices. High zero tax ceilings would impair this coordination. If the zero tax ceiling is above what founders are willing to pay, CB owners may fail to cooperate to lower their price, causing the CBs in the area to have low value.
Problems of having a low tax ceiling:
If the tax ceiling is low, then CB owners would either unnecessarily spend money on taxes, to keep the price of their CB closer to the correct value, or lower their CB price, which would probably result on it being sold for a low price.
In conclusion, it is not in the interest of CB owners to set high or low zero tax ceilings in relation to an unknown sweetspot. The voting method I propose would allow CB owners to try to find the ceiling that would benefit them the most by testing and adjusting.
Division by region
In any given area available for independence, some regions would probably be more valuable than others for IZ creation. This may be because of proximity to urban centers, landscape beauty, favorable topography, among other causes.
Given this, a single zero tax ceiling prevalent over the whole area available for independence seems inadequate. Better to have divisions by region, so that on less valuable areas the ceiling can be set lower, and on more valuable regions, higher.[8]
There could be, then, different referendums for different areas, to allow for this finer setting of the ceiling. (Again, the voters on these referendums would not be the local population, they would be the owners of the CBs which are located in each of those areas. These people would be scattered around the adopting country and around the world.)
7) Inequality in the selling of CBs
Ideally, the benefit provided by CBs should be equal to all citizens. However, some citizens may be unlucky in the sense that they receive CBs in an area that doesn’t get chosen by founders. So, an inequality characterized by some people being able to sell their CBs and some not being able to do so may develop.
One way to combat this is to give each citizen a large number of smaller CBs distributed throughout the country instead of a single CB in a particular location.
With this distribution, the probability of citizens being able to sell their CB areas would be greater. (This solution was already proposed in part I, in a slightly different context.)
One thing to keep in mind when thinking about inequality in CB distribution is that CBs are also valuable for citizenship. People who receive very valuable CBs would still need 50% of their initial CB area to keep citizenship. To sell beyond the 50% threshold while keeping citizenship, they would need to buy substitute CBs, increasing the demand for and the price of CBs held by those whose areas are less suitable for IZ creation.
8) Perpetual Auctions and Citizenship
In expevolu, citizens would not lose citizenship unwillingly. If they want to sell the CB area necessary to maintain their citizenship, they would need to make it very explicit that they are willing to lose their citizenship in order to do so.
However, under the current scheme of Perpetual Auctions, the selling of CBs is automatic and all CBs are always for sale, which seems to present a problem for citizens who want to guarantee citizenship. How would they be able to make sure they will always have enough CB area for citizenship?
Here is how it would work:
By default, all citizens would be set as ‘unwilling to lose citizenship’ in the electronic auction system. The CBs of ‘unwilling’ citizens would be traded freely, but there would be a mechanism of CB substitution in place. If a CB area necessary for citizenship is sold in the auction market, then the money from the sale would be automatically used to buy a substitute CB area.
This system would allow founders to institute their IZs freely, while also permitting citizens to retain their citizenship. The system would also allow people from regions which are not selected for IZs to be able to sell their CBs.
It would be important to the CB owners who have their CBs automatically replaced that the CB areas they receive as replacement are of similar (or greater) value to the ones they lose. I haven’t, however, established a definite rule by which substitute CBs would be chosen for automatic replacement. Maybe citizens could choose in advance the substitute CBs they want, so that, when their CBs are bought, they are substituted automatically by their preferred ones. Or they could chose in advance the rules of selection among a set of pre-defined options. This way, when their CBs are bought, their preferred algorithm would be used to select the substitute CBs.[9]
Proof of ability to live abroad Maybe it would be interesting to obligate citizens who want to sell their CBs beyond the citizenship threshold, to provide some proof that they are able to live abroad. Maybe prohibit them from selling those CBs until they live a couple of years abroad, demonstrating that they have the capacity to do so. Maybe, additionally, they could be required to sell those CBs from a different country, because preventing someone to come back in seems easier than forcing them out.
I say this because some citizens may sell their last CB areas even if they don’t have an alternative country to live in. In this situation the adopting country would be obligated to kick them out. Removing citizens would be a problematic and maybe politically costly thing to do, so it would be best to have measures in place to avoid it as much as possible.
9) Word of Caution and Conclusion
In this post, I proposed the application, over large areas, of a significant alteration to the rules of private property. However, I believe doing so, without testing the system beforehand, is dangerous. The normal design of private property is present, widely used and stable in pretty much any country on earth. If we are going to apply a different design over areas where people live, we should test beforehand if this different design works.
A prudent prospective adopting country, then, before fully implementing the system, should try it in small areas, with safeguards to the local population, and see how the system performs. The Perpetual Auction system could be tested just on real estate first, without CBs or the possibility of independence; if the system succeeds under this simpler setting, then further tests could be made incorporating more aspects of expevolu.
The mechanism could also be tested in virtual environments. For instance, people could create games or game mods in which the property rules are those of the Perpetual Auction scheme. All gear from all players could be for sale at their self-assessed price at all times, for example.
This virtual use would be great to find flaws in the system, as players would try to exploit those flaws. It would also be great to test the system widely at low cost.
Part III
The next post is the final one of this three-part series explaining expevolu. It will be a much shorter post and it would be mostly talking about some of the incentives political agents would have to implement expevolu. The post will be a bit asymmetrical in the sense that it will mostly talk about the incentives people would have to favor the system, while not properly addressing the reasons people would have not to favor it. People should take this omission into consideration when making their own assessment of the likelihood of the system being implemented.
I think I first came in contact with this idea by reading the blog post Yay, Stability Rents, on Robin Hanson’s blog Overcoming Bias. The blog discusses the idea and points to the work of Eric Posner and Glenn Weyl on the subject. Property is Only Another Name for Monopoly, paper by Glenn Weyl and Eric Posner. Radical Markets: Uprooting Capitalism and Democracy for a Just Society, book by Weyl and Posner.
Ideally, the Harberger taxes on real estate should not be an addition to the taxes real estate owners already pay; they should substitute those taxes. However, I haven’t thought much about this and maybe it would be hard to make the Harberger Taxes neatly substitute existing taxes.
A second option would be to get a strong Schelling Point and use it to set the zero tax ceiling. For instance, one could use the price of the underlying property as the price of the zero tax ceiling, so that CB owners could set tax free CB prices (per unit of measure) up to the price (per unit of measure) of the underlying property. The idea here is that, 1) in the absence of a better way to estimate CB value, the value of real estate territorial rights could be used as a proxy to the value of the territorial rights given by CBs, and 2) the price would be hard to manipulate, so the system offers some protection against corruption and should be more easily accepted by the population. However, this Schelling Point arrangement doesn’t offer much flexibility and this could be a big problem. Imagine that the actual best zero tax ceiling is not at the price of the underlying property, but actually at ¼ that price, or 4 times that price, in this situation people would be stuck with a terrible result. Either people would be forced to sell their CBs at a much lower price than they could get, because the taxes would pressure them to lower their prices, or they would be stuck in a situation in which founders are dissuaded from buying their CBs because there would be too many overpriced CBs in the region.
This division by area may cause different regions to compete among themselves through ceiling values. Some areas may lower their zero tax ceiling in relation to other areas in order to attract founders. This competition may reduce the benefit CBs grant to citizens of adopting countries. Maybe the best mechanism, then, would be one which allows the fine tuning of the ceiling value by region, but also allows collective bargaining on a country scale.
Another option would be a desynchronized transaction (however this may be problematic). In this arrangement, the buying of substitute areas would not be automatic, instead the citizens would receive the money from the selling of their CBs and be allowed some time to buy the replacement CBs of their choice.
Expevolu, Part II: Buying land to create countries
Link post
This is the second of a series of three posts outlining the expevolu system; if you haven’t read the first one I’d recommend you start there:
Expevolu, a laissez-faire approach to country creation
PART II – Perpetual Auctions
Table of Contents:
1) The Problem
2) The Holdout Problem
3) Perpetual Auctions
4) The bypass by independence problem
5) Zero Tax Ceiling Intro
6) Zero Tax Ceiling
7) Inequality in the selling of CBs
8) Perpetual Auctions and Citizenship
9) Word of Caution and Conclusion
1) The Problem
To institute a country, a founder would need to buy a very large quantity of contiguous Citizens Bundles (CBs) and a very large quantity of contiguous properties. For this to happen, the founder would need to have a very long streak of successful transactions for properties and CBs without a single failure. To achieve this, under normal circumstances, would be nearly impossible. This post is about this problem and a proposed way to overcome it.
Swiss Cheese Countries
An alternative would be for founders to abandon the goal of a solid territory. They would just buy the CBs and properties that they could and create their countries around the land they were not able to clear. For example, if a farmer refused to sell her farm to a founder, the founder could just build his country around that farm. Since the founder failed to buy the farm, the farm would still be part of the adopting country’s territory; it would be a little dot of adopting country within the borders of the new country.
This kind of scenario would be a burden to adopting countries and a strain on the relations between them and new countries (not to mention the costs to the people living on these islands of adopting country within new countries). Such circumstances would not be permitted in expevolu. To acquire independence rights, a founder would need to have a solid patch of land, with all its properties and CBs.
Since “Swiss cheese” countries would be prohibited in expevolu, we are back to the situation of a founder having to go through an enormous amount of transactions without a single failure in order to establish a new country.
This would be prohibitively difficult for most independence projects.
Transactions Fail
One of the issues here is that transactions, even mutually beneficial ones, sometimes fail. In trying to bargain for better prices, sometimes both parties of a potential transaction end up not reaching a deal.
If, for instance, the seller of a property has the wrong perception about how high a price a buyer is willing to pay, or the buyer has a wrong perception about how low a price he can get, the transaction may fail, even if it is mutually advantageous.
Since the number of transactions to create a country is enormous, some are bound to fail; and a single failure is enough to negate a whole project.
2) The Holdout Problem
The situation, however, is even worse because of something called “the holdout problem.” Here is a GPT-4 explanation of the concept:
In the world of land acquisition for large-scale projects, the holdout problem presents itself when an individual or a group of landowners, realizing the essential need of their land for the project’s success, demand a price far exceeding the market value.
Picture a situation where a corporation wants to build a new factory. To do so, they need to acquire a large contiguous piece of land made up of numerous smaller plots owned by different individuals. Each owner, knowing that without their specific plot the factory can’t be built, might hold out, refusing to sell unless they get a price significantly above the market rate. This is where the term “holdout problem” comes from.
Here’s an in-depth look at the holdout problem:
Context
The holdout problem is often seen in situations involving collective action, such as land assembly or infrastructure development, where a single project requires the aggregation of numerous separately owned pieces of property. A classic example is the construction of a railway line or highway that needs to pass through several privately owned lands.
Issue
The issue arises when one or more property owners refuse to sell at the offered price, holding out for a higher price. They can do this because they understand that their land is vital for the project, giving them considerable bargaining power. They essentially hold the project hostage, hoping to extract a higher payment from the buyer.
The holdout problem can lead to significant inefficiencies. For example, projects might be delayed or even abandoned because of one or more holdouts, which can result in considerable social and economic costs. Alternatively, projects might be rerouted or redesigned to avoid dealing with holdouts, but this can lead to suboptimal outcomes, such as less efficient transportation routes or increased costs.
(End of GPT-4 explanation)
Founders’ willingness to invest in new countries is related to both the probability that they will be able to establish their countries and the amount of value they would be able to extract from these countries.
Under normal property rules, property owners have the right to retain their properties independent of the offer made for the acquisition of those properties, they have the right to refuse to sell and keep them.
This right of retention over their territorial rights makes the probability of a founder being able to acquire all the necessary rights to establish a country extremely low. It also means that any value founders expect to extract from new countries would tend to be captured by CB and property owners, further reducing founders’ incentives to invest.
Some sort of mechanism to deal with this issue is necessary; otherwise founders would not be able to get the required rights to create countries. This would drastically reduce the significance of expevolu; the system would fail in its most essential goal of allowing people to create new countries.
3) Perpetual Auctions
There are a few alternative ways to address the land (and CB) assembly problem. The ones I looked at were, in general, inadequate in important ways. However, there was one alternative, associated with economist Arnold Harberger [1], which I found quite reasonable.[2]
Here is a GPT-4 description:
Harberger, a renowned economist, proposed a rather radical model for property rights which aims to alleviate inefficiencies related to the holdout problem and promote a more effective allocation of resources.
The Model
This approach is often referred to as the “Harberger Tax” system, or “self-assessed property taxation.” Here’s how it works:
Self-Assessment: Every property owner is required to self-assess the value of their property and display this price publicly.
Taxation: Owners then pay a tax based on their self-assessed valuation. The tax rate could be determined by the government or relevant authorities. The revenue from this tax can be used to fund public goods or services, reduce other taxes, etc.
Sale Obligation: Crucially, the property must be up for sale at all times at its self-assessed price. This means that if anyone offers to buy the property at the stated price, the owner must sell it.
Implications and Goals
This mechanism has several significant implications and is designed to achieve specific goals:
Prevent Overvaluation: Since property owners have to pay a tax based on their self-assessed valuation, there’s a disincentive to overvalue their properties because it would lead to higher taxes.
Prevent Undervaluation: At the same time, owners can’t undervalue their properties too much to avoid taxes because they risk someone else buying their property at that undervalued price.
Promote Efficient Allocation: The model is intended to ensure that properties are more likely to end up in the hands of those who value them the most. This is because anyone who values the property more than the current self-assessed price can buy it and then set a new self-assessed price equal to their higher valuation.
Address the Holdout Problem: The Harberger Tax system can effectively eliminate the holdout problem. Since properties must be sold to any willing buyer at their self-assessed price, property owners can’t hold out for a higher price.
(End of GPT-4 explanation)
Expevolu would apply this solution to both properties and CBs.
1) Self-Assessment: Every property and CB owner would be required to self-assess the value of their property or CB and display this price publicly.
2) Taxation: Owners would then pay a tax based on their self-assessed valuation.
3) Sale Obligation: Crucially, every property and CB must be up for sale at all times at their self-assessed price. This means that if anyone offers to buy the property or CB at the stated price, the owner must sell it.
Country Creation Under Perpetual Auction
For the purpose of visualization, let’s bring up one of our fictitious square countries.
As usual, the black lines represent the borders of the adopting country, the red lines the borders of real estate properties, and the blue lines the CBs. The selected region indicates where a founder wants to create a country.
In the tables below we can see the properties and CBs that fall within the selected region; beside each owners’ name is their self-assessed price.
Properties:
CBs:
In the ‘simplified expevolu’ model, presented in part I, the rules of property would be the ordinary ones prevalent in most countries. Therefore, most CBs and properties wouldn’t be for sale and founders would have to negotiate with each CB and property owner to buy their rights. Under the Perpetual Auction scheme, all rights would always be for sale and founders would be able to buy them all in a centralized digital market.
The transactions in the CB and real estate market in expevolu would need to be much faster than the transactions in regular real estate markets. The demands on the underlying infrastructure to carry out these transactions would be much larger. Transactions would have to be done fast, digitally and in a secure manner. I can’t imagine it working under the real estate transaction proceedings prevalent currently. Adopting countries would need to upgrade to more efficient ways of transacting territorial rights before the Perpetual Auction scheme is implemented.
A good way for founders to buy the necessary rights would be stealthily. They could buy all the required CBs, all properties and request independence in a single move. This way they would not disclose to CB and property owners their interest in the region. The rights owners would realize the interest in their assets only after they were already bought and the opportunity to raise their price lost.
Each property and CB owner whose assets are bought would automatically receive the price they had set for them, and their CBs or properties would be transferred to the buyer.
Once it is determined that a region will be made into an IZ, there is no need for the properties and CBs of that region to remain in the market. Therefore, both properties and CBs are removed from the market once founders, after having consolidated the necessary assets under their names, file for Independence Rights.
After founders file for Independence Rights, their chosen territory would not be made immediately available for them to establish their IZs. There would be a period to allow the people who live on the area to move out. Only after this period would founders be allowed to institute their IZs.
Right to Fraction Belongs to Real Estate Owners
In the previous example, there was no fragmentation of existing properties or CBs. The necessary properties and CBs fell completely and perfectly within the selected region. In practice, selected regions borders would cut through the middle of numerous CBs and properties, in a way that some bits of them would be in the selected regions and some bits out of the selected regions.
This being the case, maybe we should allow founders to buy only the bits of real estate and CB which fall in their selected territories, because they only need those parts. Allowing this, however, would lead to substantial problems.
Leaving CBs aside for a moment, let’s focus on real estate rights.
Imagine that you own a farm over which you perform some economic activity. The property has many different areas, which fulfill different, interdependent, tasks. If the system allowed buyers to buy whatever portion of a property they wanted, then they could disrupt your whole operation by buying a crucial area of your property.
This is a problem in and of itself, but there is an even worse problem. Allowing people to buy portions of properties in the auction market would present an opportunity for them to willingly disrupt real estate owners’ operations in hopes to get an advantage. People could buy tiny, but critical fractions of landowners’ properties and significantly raise the price of those bits in the auction market in hopes that the original owners would want to get them back. This would probably drastically reduce productivity in the areas available for independence, and disrupt people’s private lives as well.
Therefore, the right to divide properties in expevolu would be in the hands of the property owners. Founders would need to buy whole properties (or convince the owners of those properties to divide them neatly for them). After they buy the properties, they would then be allowed to divide them, using the parts they wanted to establish their IZs and putting the rest back for sale in the auction market.
CB Fractions
With regard to CBs, since they don’t grant power over land, this particular problem wouldn’t exist. So, maybe the best thing would be to allow buyers to buy exactly the portions they want, however, I am not sure (I haven’t thought much about this).
If founders are to be allowed to divide CBs in the act of buying, acquiring only the exact CB areas they want, then the system needs to be able to deal with that. I imagine something like the founder drawing his or her selected region on a digital map of the adopting country and the application determining what CBs and properties need to be bought and their price. The application would have to be able to divide CBs, calculate the prices of fractional CBs and carry out the transactions for these fractions (along with the transactions for the full CBs and properties).
Perpetual Auction wouldn’t be applied in cities
It is important to note that this system would be applied only to the regions available for independence. Properties in big cities, for instance, would not be under auction; the normal property legislation of the adopting country would be the one in effect on these areas.
Checkpoint (Natural point for a break)
4) The bypass by independence problem
The Perpetual Auction scheme prevents territorial rights owners from having the power to veto the sale of those rights. If territorial rights owners had the right to refuse selling, then founders would be incapable of acquiring the necessary rights, new countries wouldn’t arise and expevolu would lose almost all of its relevance.
One problem with the Perpetual Auction system as presently described is that people would be able to acquire veto power through independence, recreating the problem that the system is supposed to solve.
For example:
Let’s say an individual believes that a particular region within the adopting country is a great place for a country to be created. This person could, for instance, buy a small property and corresponding CB in the region, make the small bit of land he acquired independent and offer to sell it at 50 times the price he paid for it. Since his land is independent, he is excluded from the requirement of having to sell his land at his self-assessed price. He has veto power. With everyone being allowed to do the same thing the situation becomes very similar to the one that existed before the establishment of the Perpetual Auction system; only worse, because there would be a large number of tiny parasite IZs and a compelling reason to invade them.
To combat this problem, at this point in time, I only have a very blunt tool, but I hope better alternatives will be thought of in the future. The blunt tool is a very high tax on the creation of isolated small independent zones. People who’d want to create an isolated small IZ, would have to pay a very high tax.
(Small IZs in large clusters would be allowed, this will be discussed briefly.)
The tax, in practice, would be so high as to work as a prohibition of isolated small IZs. This is due to the fact that people could, instead of creating a small independent zone and paying an enormous tax, use the money that would be spent on the enormous tax to buy more land and CBs to create a much larger IZ. It would make little sense to create a small IZ, given this tax. However, having to pay a large tax to have something is better than being prohibited from having it all together, so if people for some reason, in some circumstances find that they’d prefer a small IZ and a large tax instead of a large IZ and no tax, they would have this option.
Also, the tax provides a gradation that a prohibition doesn’t. The tax could be extremely high for very small IZs, but could become lower and lower as the size of the IZs to be established increases. The tax then, is intended as a prohibition to the implementation of small IZs, but offers some flexibility to larger IZs that a cruder prohibition wouldn’t.
This solution of effectively prohibiting small IZs, at least at first glance, seems quite terrible. Maybe the most desirable characteristic of expevolu was to allow the test of different societal arrangements in small scale; if small independent zones are heavily taxed, then it looks like this very important function of expevolu is lost. This, however, is not the case. Although I do believe the heavy taxation solution is hindering to the creation of small zones, and I am hoping for a better solution to appear in the future, the solution still permits a large number of small zones to be created. The reason for this is that there are many ways a small zone can be established in expevolu other than the way it would be taxed. Here are some examples:
Small Zone Clusters
Different founders that want to establish small zones may coordinate to join their zones together, in a way that the territory of all zones added exceeds the threshold of taxation. They could request the adopting country to create separate independence rights titles for each of the zones in the amalgamation, so that they are clearly recognized as independent from each other.
Small zones near large zones
Small zones founders may coordinate with big zones founders as well and follow the same process described above to get their small zone instituted without taxation.
Buying independent land from IZs
Another solution would be for groups or individuals who want to establish small zones to buy the areas from already established IZs.
Semi independence in established IZs with strong property rights
Other possibility would be to establish semi-independent regions, things like condominiums, in new countries. Some new countries may have “strong” private property rights, allowing people significant freedom over their properties. This allows for the existence of communities with different institutions than the ones of the country on which they are established. These communities may in practice be very similar to fully independent countries and their level of independence may be enough for many projects.[3]
In summary, although the option of heavily taxing isolated small IZs is not optimal, it doesn’t preclude the creation of small zones.
The specifics of this tax will be left open for now: what (in units of measure) is meant by ‘small’ in small zone, how the tax would be calculated, how the tax would decrease as the zones to be established increase—these questions will not be answered here. I don’t have good answers to them at this point. Hopefully we can get a community of people interested in expevolu in the future; contributing ideas and refining the system.
5) Zero Tax Ceiling Intro
The taxation of properties and CBs proposed in the previous section, the Harberger Tax system[4] , works well for properties, but as currently set, doesn’t work well for CBs.
The rights represented by CBs are, in practice, held by the governments of adopting countries. CBs don’t grant control of land to their holders. Since this is the case, one cannot produce with CBs. One cannot plant crops or raise cattle with CBs, for example, like one can with real estate rights, and this affects how CBs should be taxed.
Real estate rights give you the ability to use the land productively and use the production of the land to finance the tax. CBs doesn’t give you this ability. Here is an example to illustrate the difference:
A tax on the price of property looks like this:
Price of property: $100,000
Tax: 5% of price per year
Average production per year: $20,000
Taxes payed: $5,000 per year
Surplus per year: $15,000
A similar tax on CBs looks like this:
Price of CB: $100,000
Tax: 5% of price per year
Average production per year: $0
Taxes payed: $5,000 per year
Surplus per year: -$5,000
Under this scheme CBs would tend to have a low value, because to sustain the price of CBs for long periods, CB owners would have to pay a lot in taxes with no compensating income.
CB owners, then, would be strongly compelled to lower their prices in order to either pay less taxes or eliminate the taxes completely by selling their CBs. This would drastically reduce the benefit citizens from adopting countries would derive from CBs.
Additionally, the taxes prevent CB owners from holding their assets for long periods of time. It is quite likely that it would take time for large portions of an adopting country to be taken by new countries (if it ever happens at all). IZs could creep on the space of Adopting Countries gradually, through the years and decades. So, it would be in the interest of CB owners to be able to hold out for the long run, because the best selling opportunities may be way in the future. However, with the current taxing arrangement, keeping CBs for long is not feasible, at least not with adequate CB prices.
Since this would be a really bad outcome, some adjustments to the current system have to be made to prevent it.
6) Zero Tax Ceiling
One important thing to notice about the Harberger Tax as it is used in expevolu, is that it is used to drive behavior, not to collect funds. The purpose of the tax is to avoid the Holdout Problem; the tax is just a means to this end.[5]
With this in mind, my proposed solution to the problem is to exempt CB owners from taxation up to a CB price (per unit of measure). This threshold price will be referred to as zero tax ceiling. If the zero tax ceiling is $10,000 per hectare, for instance, citizens would be able to set this price per hectare to their CBs, or any price below it, and chill without having to pay taxes.
This would prevent the tax from improperly devaluing CBs and would allow CB owners to hold their CBs for extended periods of time. It would also continue to prevent the Holdout Problem, because high CB prices would still be taxed.
However, there is the problem of how to determine the value of this zero tax ceiling.
Who should define the zero tax ceiling and how to define it?
Defining this zero tax ceiling seems to require some amount of arbitrariness; there is no evident optimal value to use.
One way to determine it, would be to get some experts to set the ceiling; to get some economists to do it, for instance. This kind of arrangement tends to be distrusted. CB owners may believe that their CB prices are being mispriced either by incompetence or for personal gain and may reject this approach.[6]
The option I adopted is to let the CB owners vote on the value of the zero tax ceiling they want for themselves.[7] The zero tax ceiling would, then, be defined by referendum and would be changed periodically by future referendums. These referendums would be completely dissociated from the normal elections of democratic adopting countries. The voters in the referendums would be the CB owners and they would have voting power in proportion to their CB areas. The voting CB owners would include foreigner who hold CBs.
To illustrate the functioning of these referendums, imagine an adopting country which just completed the distribution of CBs. The country has one hundred citizens, each owning a CB of one hectare. In this initial phase of expevolu, since every citizen has the same CB area, every CB owner would have the same voting power.
As citizens buy and sell CBs, the voting power of each CB owner would vary in accordance with the size of their CB areas.
Maybe the underlying property rights price could be used as a proxy of CB value and serve as an anchor for determining the options to be given to voters. Let’s say the average price of real estate rights on the area available for independence is $10,000 per hectare. In this case, the options available for voters as the zero tax ceiling could be:
0.25 x $10,000 per hectare
0.5 x $10,000 per hectare
$10,000 per hectare
2 x $10,000 per hectare
4 x $10,000 per hectare
The CB owners would vote in their preferred choices among these options.
(It is important to implement a fitting voting system for this referendum, because some voting systems would generate terribly inaccurate results.)
Wouldn’t everyone just vote to have the highest tax ceiling possible?
Problems of having a high tax ceiling:
For an individual, it would make sense to remove the constraints of the zero tax ceiling on him or her self by assigning to themselves an infinitely high ceiling. However, if you are voting for the zero tax ceiling not only of your CB, but also of the CBs neighboring yours, then this is a bad strategy.
If all your neighbors can put their price extremely high, then this would bring back the holdout problem and would devalue CBs, because founders would not be able to buy all the necessary contiguous CBs to create a unified IZ territory. CBs are valuable because of the IZs that can be created through them and the citizenship rights they provide, if founders can’t create IZs where your CB is located, a good chunk of its value is lost.
The tax helps coordinate the lowering of CB prices. High zero tax ceilings would impair this coordination. If the zero tax ceiling is above what founders are willing to pay, CB owners may fail to cooperate to lower their price, causing the CBs in the area to have low value.
Problems of having a low tax ceiling:
If the tax ceiling is low, then CB owners would either unnecessarily spend money on taxes, to keep the price of their CB closer to the correct value, or lower their CB price, which would probably result on it being sold for a low price.
In conclusion, it is not in the interest of CB owners to set high or low zero tax ceilings in relation to an unknown sweetspot. The voting method I propose would allow CB owners to try to find the ceiling that would benefit them the most by testing and adjusting.
Division by region
In any given area available for independence, some regions would probably be more valuable than others for IZ creation. This may be because of proximity to urban centers, landscape beauty, favorable topography, among other causes.
Given this, a single zero tax ceiling prevalent over the whole area available for independence seems inadequate. Better to have divisions by region, so that on less valuable areas the ceiling can be set lower, and on more valuable regions, higher.[8]
There could be, then, different referendums for different areas, to allow for this finer setting of the ceiling. (Again, the voters on these referendums would not be the local population, they would be the owners of the CBs which are located in each of those areas. These people would be scattered around the adopting country and around the world.)
7) Inequality in the selling of CBs
Ideally, the benefit provided by CBs should be equal to all citizens. However, some citizens may be unlucky in the sense that they receive CBs in an area that doesn’t get chosen by founders. So, an inequality characterized by some people being able to sell their CBs and some not being able to do so may develop.
One way to combat this is to give each citizen a large number of smaller CBs distributed throughout the country instead of a single CB in a particular location.
With this distribution, the probability of citizens being able to sell their CB areas would be greater. (This solution was already proposed in part I, in a slightly different context.)
One thing to keep in mind when thinking about inequality in CB distribution is that CBs are also valuable for citizenship. People who receive very valuable CBs would still need 50% of their initial CB area to keep citizenship. To sell beyond the 50% threshold while keeping citizenship, they would need to buy substitute CBs, increasing the demand for and the price of CBs held by those whose areas are less suitable for IZ creation.
8) Perpetual Auctions and Citizenship
In expevolu, citizens would not lose citizenship unwillingly. If they want to sell the CB area necessary to maintain their citizenship, they would need to make it very explicit that they are willing to lose their citizenship in order to do so.
However, under the current scheme of Perpetual Auctions, the selling of CBs is automatic and all CBs are always for sale, which seems to present a problem for citizens who want to guarantee citizenship. How would they be able to make sure they will always have enough CB area for citizenship?
Here is how it would work:
By default, all citizens would be set as ‘unwilling to lose citizenship’ in the electronic auction system. The CBs of ‘unwilling’ citizens would be traded freely, but there would be a mechanism of CB substitution in place. If a CB area necessary for citizenship is sold in the auction market, then the money from the sale would be automatically used to buy a substitute CB area.
This system would allow founders to institute their IZs freely, while also permitting citizens to retain their citizenship. The system would also allow people from regions which are not selected for IZs to be able to sell their CBs.
It would be important to the CB owners who have their CBs automatically replaced that the CB areas they receive as replacement are of similar (or greater) value to the ones they lose. I haven’t, however, established a definite rule by which substitute CBs would be chosen for automatic replacement. Maybe citizens could choose in advance the substitute CBs they want, so that, when their CBs are bought, they are substituted automatically by their preferred ones. Or they could chose in advance the rules of selection among a set of pre-defined options. This way, when their CBs are bought, their preferred algorithm would be used to select the substitute CBs.[9]
Proof of ability to live abroad
Maybe it would be interesting to obligate citizens who want to sell their CBs beyond the citizenship threshold, to provide some proof that they are able to live abroad. Maybe prohibit them from selling those CBs until they live a couple of years abroad, demonstrating that they have the capacity to do so. Maybe, additionally, they could be required to sell those CBs from a different country, because preventing someone to come back in seems easier than forcing them out.
I say this because some citizens may sell their last CB areas even if they don’t have an alternative country to live in. In this situation the adopting country would be obligated to kick them out. Removing citizens would be a problematic and maybe politically costly thing to do, so it would be best to have measures in place to avoid it as much as possible.
9) Word of Caution and Conclusion
In this post, I proposed the application, over large areas, of a significant alteration to the rules of private property. However, I believe doing so, without testing the system beforehand, is dangerous. The normal design of private property is present, widely used and stable in pretty much any country on earth. If we are going to apply a different design over areas where people live, we should test beforehand if this different design works.
A prudent prospective adopting country, then, before fully implementing the system, should try it in small areas, with safeguards to the local population, and see how the system performs. The Perpetual Auction system could be tested just on real estate first, without CBs or the possibility of independence; if the system succeeds under this simpler setting, then further tests could be made incorporating more aspects of expevolu.
The mechanism could also be tested in virtual environments. For instance, people could create games or game mods in which the property rules are those of the Perpetual Auction scheme. All gear from all players could be for sale at their self-assessed price at all times, for example.
This virtual use would be great to find flaws in the system, as players would try to exploit those flaws. It would also be great to test the system widely at low cost.
Part III
The next post is the final one of this three-part series explaining expevolu. It will be a much shorter post and it would be mostly talking about some of the incentives political agents would have to implement expevolu. The post will be a bit asymmetrical in the sense that it will mostly talk about the incentives people would have to favor the system, while not properly addressing the reasons people would have not to favor it. People should take this omission into consideration when making their own assessment of the likelihood of the system being implemented.
This concludes part II.
Thanks for reading. :)
I don’t know if Harberger came up with the idea or if he is just recognized for having disseminated and contributed to it. According to Robin Hanson “Harberger didn’t invent the idea; it goes back at least to ancient Rome.”
I think I first came in contact with this idea by reading the blog post Yay, Stability Rents, on Robin Hanson’s blog Overcoming Bias. The blog discusses the idea and points to the work of Eric Posner and Glenn Weyl on the subject. Property is Only Another Name for Monopoly, paper by Glenn Weyl and Eric Posner. Radical Markets: Uprooting Capitalism and Democracy for a Just Society, book by Weyl and Posner.
The book Free to move, by Ilya Somin, is a good reference to better understand this option.
I use the terms Harberger Tax system and Perpetual Auction system interchangeably.
Ideally, the Harberger taxes on real estate should not be an addition to the taxes real estate owners already pay; they should substitute those taxes. However, I haven’t thought much about this and maybe it would be hard to make the Harberger Taxes neatly substitute existing taxes.
A second option would be to get a strong Schelling Point and use it to set the zero tax ceiling. For instance, one could use the price of the underlying property as the price of the zero tax ceiling, so that CB owners could set tax free CB prices (per unit of measure) up to the price (per unit of measure) of the underlying property. The idea here is that, 1) in the absence of a better way to estimate CB value, the value of real estate territorial rights could be used as a proxy to the value of the territorial rights given by CBs, and 2) the price would be hard to manipulate, so the system offers some protection against corruption and should be more easily accepted by the population.
However, this Schelling Point arrangement doesn’t offer much flexibility and this could be a big problem. Imagine that the actual best zero tax ceiling is not at the price of the underlying property, but actually at ¼ that price, or 4 times that price, in this situation people would be stuck with a terrible result. Either people would be forced to sell their CBs at a much lower price than they could get, because the taxes would pressure them to lower their prices, or they would be stuck in a situation in which founders are dissuaded from buying their CBs because there would be too many overpriced CBs in the region.
This idea is tentative and alternatives are welcome.
This division by area may cause different regions to compete among themselves through ceiling values. Some areas may lower their zero tax ceiling in relation to other areas in order to attract founders. This competition may reduce the benefit CBs grant to citizens of adopting countries. Maybe the best mechanism, then, would be one which allows the fine tuning of the ceiling value by region, but also allows collective bargaining on a country scale.
Another option would be a desynchronized transaction (however this may be problematic). In this arrangement, the buying of substitute areas would not be automatic, instead the citizens would receive the money from the selling of their CBs and be allowed some time to buy the replacement CBs of their choice.