Dr. David Friedman posted a link to his most recent work on his blog. The selection is titled “Legal Systems Very Different from Ours” and it is a really fascinating read.
The Athenians had a straightforward solution to the problem of producing public goods such as the maintainance of a warship or the organizing of a public festival. If you were one of the richest Athenians, every two years you were obligated to produce a public good; the relevant magistrate would tell you which one….
Such an obligation was called a liturgy. There were two ways to get out of it. One was to show that you were already doing another liturgy this year or had done one last year. The other was to prove that there was another Athenian, richer than you, who had not done one last year and was not doing one this year.
This raises an obvious puzzle. How, in a world without accountants, income tax, public records of what people owned and what it was worth, do I prove that you are richer than I am? The answer is not an accountant’s answer but an economist’s—feel free to spend a few minutes trying to figure it out before you turn the page.
The solution was simple. I offer to exchange everything I own for everything you own. If you refuse, you have admitted that you are richer than I am, and so you get to do the liturgy that was to be imposed on me.
It kept me engaged all afternoon.
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to the full extent allowed by law.
“Oh Mr. Buffett … it’s another one of those pesky offers to exchange everything they own for everything you own. It seemed like a good idea at the time, didn’t it?”
What if you just don’t want to deal with the inconvenience? I wouldn’t exchange everything I own for everything a college student who is richer but less technically oriented owns; I’d have to re-buy all my gadgets.
Reminds me of the old brain-teaser about the king deciding which of his two sons was to receive his inheritance. The king decreed that they would race horses, and whoever had the slowest horse would be the winner. Naturally, they were concerned about the possibility of cheating, and consulted a wise man. His solution? “Switch horses.”
This is the very practical solution to settling disputes about undivided real estate, in estate dispersments. How to determine the price of a house, so one heir can buy out the other?
Simple. One sets the price. The other must buy or sell at that price.
That’s how we used to split a “lid” of pot back in the sixties. One of the two buyers would split it and the other would choose which pile to take. Good times.
The offer to buy or sell at a set price, giving the offeree the option of which to accept is a great clause in two-man partnership and corporation agreements. I’ve used it frequently, and it works well when drafted with care to assure that either party will have adequate ability to fund a buy-out.