In my last post about 501(d) organizations, I mentioned the possibility of an entity that incentivizes communal living instead of requiring it. I want to go into a little more detail about that idea. Communal living can be broken down into two basic components that are now somewhat separable: living together, and working together. Here I will focus on the aspect of getting people to work together. But first, remember from my Kibbutz post that two things determine the sustainability of equality in a Kibbutz: wealth and ideology.
Now consider the following very basic model of someone deciding whether they want to be a part of a communal society:
Each member expects to see a total benefit of joining a communal society that includes components such as the expected intrinsic value of being part of the community, I (which kind of represents their commitment to the community ideology), the average productivity of the community, A (which gets distributed to the members equally), and some dividends, D (i.e., from their total wealth). The dividends can also come in the form of free rent, access to a community swimming pool, etc. (things that money can buy, but members don’t have to). So the total benefit is:
Benefit = I + A + D
On the other hand, they have an opportunity cost based on their individual productivity (i.e., what their wage would be on the free market).
Cost = P
The will want to join if the benefits outweigh the costs:
I + A + D > P
If we ignore ideology and wealth, people will want to join if and only if the average productivity of the group is greater than their individual productivity:
A > P
This is bad because then every member who joins will reduce the productivity of the group until it becomes unsustainable. Thus, as shown in the Kibbutz example, communal groups are more sustainable if I (ideology) and D (dividends) are large.
The two most obvious ways to address this are to increase I and D. That is, establish the community with enough of an endowment to incentivize people to join, and then convince them that communal living is a good idea. But, as many Kibbutzes have done, another way is to relax the equality requirement.
Imagine if the average productivity of a group is 100, and a prospective member thinks being part of the group is intrinsically worth 30, and there is enough wealth to provide dividends of 10. Then the new member will feel great about joining if their productivity is less than 135.
So what if their productivity is say, 200? That is, what if they want to be a part of the community but they are just super valuable on the market?
If the group can actually utilize their productivity it might make sense to cut some deal like paying them 165 or more. But what if their productivity requires them to be a part of some specialized organization (e.g., if they are in demand as CEO of a large corporation)?
Another option is to have them join, but then let them work outside the group. This would probably reduce the the intrinsic value they get from joining the community, say from 30 to 15 (because part of the intrinsic value comes from working within the community). Furthermore, it might seem a bit unfair if they get the benefits of membership without any of the commitment.
One option is to just have them forgo the dividends. But in some cases this might not be the most efficient solution. For example, the marginal cost of them enjoying those dividends might be small (i.e., if there is a community pool). So a better solution would be to charge them a membership fee. Based on the simple model, the prospective member would be willing to pay a membership fee of up to 25 (i.e., the value of the dividends, 10, plus the reduced intrinsic value of membership, 15).
Applying the membership fee only to those who choose to work externally ensures that there is some incentive to work together, but allows for the possibility that some people are just too valuable on the outside market to justify trying to get them to work within the community.
Of course, this doesn’t solve the problem that the incentive for people to join goes up as their individual productivity goes down. That must be dealt with in another way. For example, it could be handled by being selective in accepting new members (i.e., requiring people to prove themselves in some way), by increasing the productivity of people after they join, by valuing people for non-economic contributions, or by just accepting that not everyone will be equally productive. Probably some combination of these is the best option.
Now, I haven’t addressed the aspect of living together, but something similar could be said about that. Namely, people may find some benefit from living near each other, but it might not always be practical. Therefore, providing some kind of subsidy for living close (or penalty for not living close) can provide some flexibility while retaining incentives in line with the ideology of the group.
