The classic game of Monopoly holds a paradigm everyone is familiar with: once you purchase property, it is yours to keep. It is the foundation of the game, which for the children to adults that play it, is a caricature of real estate in American culture. Amidst the darker overtones of bankrupting your competitors, the morale of the story is clear: the one with the largest monopoly wins.
This simple concept of property ownership has also led to a housing and rental crisis in the United States. The picture above is an example, which likely invokes a thought similar to:
- The owner of the house is being stubborn and petty.
- The developers of the adjacent land are being evil.
- (If you’re me) — how could anyone tolerate the construction noise?
In any case, most would agree that this is not an optimal outcome for the house owner or adjacent land developers. It’s a lose-lose.
This state has been reached because property owners have no obligation to sell or effectively use their land. The permanence of their rights has led to intense rent-seeking, price inflation, or worse — pure speculative holding. The latter results in no utility for society, despite land being a shared experience and a part of nature.
Our flawed model of ownership is especially tangible in cities like Vancouver, B.C, where a census has identified over 25,000 empty homes. Houses with nobody living in them. Land that isn’t benefiting anyone. This is such a problem that the government imposed a vacancy tax, only to dismally report a year later their vacancy rate only increased by .1% as a result.
The problem runs deeper than any end-of-pipe solution can address. To solve this, we have to reconsider our fundamental understanding of ownership.
As always, the classics provide a start. As Seneca admonishes in a letter,
‘But I’m being turned off the land my father and grandfather owned before me! ‘Well, so what? Who owned the land before your grandfather? Are you in a position to identify the community, let alone the individual, to whom it originally belonged? You entered on it as a tenant, not an absolute owner. Whose tenant, you may ask? Your heir’s, and that only if you’re lucky… what you possess and call your own is really public property, or mankind’s property for that matter.
To prevent monopolization, it’s necessary to shift from a model of private property to “mankind’s property” — from individual ownership to the commons.
In the book Radical Markets, Glen Weyl and Eric Posner explore this type of alternative in the COST mechanism: a common ownership self-assessed tax. In the following, I will explain several characteristics of this model (also known as the Harberger Tax), and share insights derived from practicing it with the RadicalxChange NYC meetup in an alternative version of the board game Monopoly. The usage of games — both virtual and physical — to learn is valuable as it allows for hands-on learning without any financial or real property risk.
Side note: If you haven’t heard about RadicalxChange, we are a community of artists, scholars, entrepreneurs and activists reimagining the future through mechanism design. We have an upcoming conference in Detroit and meetups in many cities worldwide — here’s a list. If your city doesn’t have a chapter, consider starting your own! I’m happy to talk to anyone thinking about this.
The COST Mechanism
The common ownership self-assessed tax has several core elements to it. First, you assess the value of your ‘wealth’ (which will refer here to property, but could also be assets, labor, or other forms). This valuation brings a corresponding tax — about 7% is optimal, according to Glen and Eric’s writing. Your property is put on a continuous auction to the public at your valuation. The taxes that are collected are redistributed to the public as a social dividend, perhaps the basis of a universal basic income.
Although this may seem quite radical, the mechanism is incentive compatible and redefines property as not as being privately owned but leased from society. This addresses the monopoly problem mentioned earlier (and would satisfy Seneca). To understand why, it’s necessary to understand investment and allocative efficiency.
Investment efficiency refers to the ability of property owners to invest in their land. Our current system promotes this type of efficiency. Landowners spend capital on their property knowing that it will be reflected in their overall property valuation. In contrast, there is also allocative efficiency, which refers to the rate by which assets flow to those who can be the most productive with those assets. As mentioned earlier, we have many signals that allocative efficiency is low in the states: empty homes, unused property, and rents that are disconnected from the true valuation of landowners. COST reduces investment efficiency and produces allocative efficiency. The tax disincentivizes landowners from setting a monopolistic price.
(Once again, the book Radical Markets by Glen Weyl and Eric Posner describes this and a lot more thoroughly, and I can’t recommend it enough for anyone interested in economics and markets.)
Monopoly happens to be the perfect board game to teach this concept, both due to its structure and its story.
The History of Monopoly
Monopoly was created by a woman named Elizabeth Magie, who sought to design a game that would help show people the power of anti-monopoly policy.
Yes — the intention of Monopoly was to promote equal distribution. Originally named Landlord’s Game, she drew up a set of contrasting rules: one value-creative, and the other ruthlessly zero-sum and monopolistic. The rules of the game we know today descend from the latter. Unfortunately, this is because someone would steal her concept of the monopolist version and sell it to the Parker Brothers. She received little attention and credit for her invention. Elizabeth’s vision of an instructive game experience never came to life commercially.
While the COST version of Monopoly is not part of her original ruleset, the act of examining monopolistic rules and practicing an alternative theory is one that resonates with the spirit of the game.
COST Monopoly and Game Insights
For the most part, our group followed the rules above. One rule we did add was auctioning a random piece of property off every turn. This helped increase the pace of the game.
The following are several insights that the group derived while discussing the game.
Auctions are fun
In retrospect, our auction system was a bit naive. We declared our bids verbally — highest bid won — and had the ‘bank’ play auctioneer. The chant of “Going once, going twice!” was unnecessary, although certainly entertaining. At one point, a couple people remarked that a second-price sealed-bid auction would be more productive. In the context of a game though, it would be too formal. The solemn process of submitting a sealed bid doesn’t allow for moments of “you’re crazy for bidding that much!”.
Combined valuation doesn’t make sense with COST
The game rule that allowed landowners to combine their property valuations did not seem conducive to the desired outcomes of COST. Each combination of property would receive a premium on its valuation due to the higher difficulty of acquiring multiple pieces of land. This consolidation of property then raises a prohibitively high barrier to becoming a landowner. A Harberger Tax benefits from modularity as opposed to integration.
Speculation drives self-assessed valuation
In the confines of Monopoly the valuation of your property should stem from discounting its future cash flow. This comes in the form of future rent. However, no one in the group made purchasing decisions based on the potential rents of property. Instead there was a race to ownership, fueled by an early abundance of money and competitive allure. We became familiar with system dynamics quickly. An auction for any piece of property immediately triggered a reassessment of the property around it. An owner of adjacent property that neglected to change their assessment would to their taxes or be bought out.
The one who saves their cash until last wins
In the endgame, scarcity drives behavior. The days of speculation end when property owners realize they can’t pay their self-assessed tax much longer. The reassessment of property that follows makes it ripe for those who are cash-rich to swoop in and dominate. I believe minimal purchasing until the endgame is the dominant strategy. COST Monopoly reflects a common feature of free markets: bubbles.
Towards More Games and Testing
This was a fascinating look at the downstream effects of mechanism design. The context of a simple board game allowed us to practice a new theory that has been centuries in the making (no, seriously — go read Radical Markets to understand the historical underpinnings of COST). Taking theory out of the confines of a whitepaper or book should not be underrated, and I hope to see more ‘remixes’ of familiar games as a form of education.
In our session, we experienced the formation and pop of a real estate bubble in less than the span of a couple hours. That the experience was valuable should be no surprise given the history of Monopoly. To cultivate real world insights through the play of a cardboard-and-plastic game is just what Elizabeth Magie intended.