

Would you sell life equity? - zellunit
http://zellunit.com/2008/04/22/would-you-sell-life-equity/

======
dangoldin
I had the same discussion with a good friend a while back. We were thinking of
starting an entire new market where people can sell some shares in themselves
and then those shares can be traded. Some issues that we though about (I'll
add more as I remember them):

\- As author mentions, once you get paid you have less incentive to work.

\- In order to make an investment, you would need access to confidential
information - risk of diseases, test scores, etc. Not sure the ethical/privacy
implications of this.

\- The type of people willing to sell may likely be the people who don't have
faith in themselves - why would you want to support that?

~~~
byrneseyeview
Can you tell me how these objections do not apply to buying shares of IBM?
Clearly, the people who work for IBM would work a lot harder if they owned the
company -- and yet billions of dollars ride on the assumption that they will
work hard anyway!

You can probably decide on which information to disclose in advance. This is
how it works with OTC securities -- some companies don't give any information
in their annual report, and others will tell you down to the last dollar how
much they spent on their secretary last year.

Unfortunately, if the government somehow allowed this, it would almost
certainly mandate consistent disclosure, making this a market for people who
have whatever cookie-cutter preferences the first bureaucrat thought up. Oh
well. Maybe if you list people in Dubai you'll have better luck. They seem
friendlier to new financial products.

~~~
dangoldin
Well they are compensated by the managers who have an incentive to make them
be as productive as possible, otherwise they'll get replaced by the
shareholders.

I'm sure there's some way to structure this to make it legitimate - maybe if
we can tax it!

------
cperciva
This is exactly the business model which most private US universities work
with, except with the minor difference that people are not required to give
money back to their alma mater. As high as the cost of tuition fees may be,
it's much less than what it costs universities to provide that education; the
difference is made up by the fact that over their lives, many Americans donate
significant fractions of their income to the institutions which educated them.
(A more macabre version of this calculation is done at universities which
provide free education to seniors because experience tells them that this is a
good way to be written into someone's will.)

And of course we shouldn't forget governments: By providing free primary and
secondary education, and (in most developed countries) free health care,
governments provide per-capita funding on the order of hundreds of thousands
of dollars -- and then call their annual dividends on equity "taxes".

~~~
mynameishere
_By providing free primary and secondary education_

It just slays me that people could type such a sentence.

"Free"

As in, the money is stolen.

"Free"

As in, they force you to go there.

~~~
wanorris
> As in, they force you to go there.

At least in the US you are under no obligation to send your kids to public
school. You can send them to a private or parochial school or home school your
children.

Why? Do you think making education completely optional would be better?

~~~
mynameishere
_completely optional_

It is completely optional. But you still have to "go there", to the building.

~~~
hollerith
Most children in the U.S. do not have to go to school if their parents are
willing to help them avoid school: the parents need only tell the school
district that they are homeschooling their child from now on. (The parents
then of course become responsible for overseeing the child's education.)

The school district will probably not like it, but unless the parents are
under court supervision for some reason (e.g., the parents were convicted of a
crime) the school district probably cannot force the parents to send the child
to school, especially if the parents are willing to do research on the
internet or appear in court once or twice.

But if the child's parents want the child to go to school, then yeah, the
child has to go.

The public school system is probably a waste of time for a bright child who
can learn on his or her own unless the child lives near an exceptionally good
public school. More bright children who have proven that they can learn things
on their own should be homeschooled.

~~~
wanorris
> The public school system is probably a waste of time for a bright child who
> can learn on his or her own unless the child lives near an exceptionally
> good public school. More bright children who have proven that they can learn
> things on their own should be homeschooled.

Aren't there often socialization problems associated with home schooling? I
don't know a lot about the topic, so I could be dead wrong. But overall, I
would be more comfortable sending bright kids to a solid school with a good
gifted and talented program where they can spend time with other kids their
own age than home schooling them myself or having them skip a bunch of grades.

Is this a misconception on my part?

~~~
hollerith
I have not reviewed the evidence myself, but the homeschooling web sites I
have read claim that the methodological evidence shows that homeschooled kids
turn out to have closer friendships and better social skills than enrolled
kids.

~~~
phaedrus
I knew a kid from Vo-Tech who was homeschooled up to then. He was noticeably
more civil & polite than the kids from public highschools his age, and seemed
more mature in his poise. If anything the socialization you receive in public
schools is a damaging exposure, I think.

------
quellhorst
Warren Buffet mentioned something similar... If you were to invest in the
future success or bet on the failure of someone, what traits do they have?

You probably wouldn't pick the smartest or dumbest and the traits are probably
habits. You can learn good habits and unlearn bad ones.

~~~
dissenter
I once read this suggestion and was very surprised by the result when I
applied it. My 'equity valuation' of someone was often in direct contrast to
my 'general appreciation' of them as a person, and to such an extent that it
was difficult to keep two such incongruous ideas in my head at the same time.

What was surprising was not the overriding tendency to appreciate people for
economically unrelated traits, but the gross effectiveness with which I could
evaluate someone as soon as I viewed them purely in terms of financial
opportunity.

I was reminded of the experience I had had with the Socratic method. When
first presented as an idea---"You just ask questions"---the Socratic method is
comically simple, almost ripe for derision, and easy to dismiss. But applying
it, and seeing it applied, you notice that it has a powerful effect. The
thoughts we arrive at on our own are immeasurably more meaningful than the
thoughts pressed on us by others.

By the same token, this method of evaluation was unexpectedly effective. As
long as I was thinking critically about who I would buy stock in, I had a
clear picture of who the most valuable people were. But just as soon as my own
assets faded from consideration the ordering became very different.

------
immad
The problem seems to be that life is a long time and most people who invest
want to see returns in a short time. I guess banks could do it, but it seems
unlikely that they would be the one to start.

I once met someone who claimed to be an entrepreneur and said they would be a
mentor to promising entrepreneurs for a promise of equity in everything that
entrepreneur did for his life. It sounded a bit ridiculous to me at the time,
and it sounds even more ridiculous now that I know more about investing.

~~~
sanswork
Most people want returns in a short time does not mean all good investments
make returns in a short time nor does it imply all good investors look just
for short term returns.

------
ambition
When someone invests in something there is an implicit assumption on both
sides:

As a buyer/investor, I assume that your present value is greater than your
price. This is what happens when people buy undervalued stocks. In better
cases, I assume that your value after investment is greater than your present
value by more than the amount of the investment. That is, by investing in you,
I add more value than the amount of the investment. This is what Y Combinator
does.

As a seller, you make the inverse assumption. Either you have lost faith in
the value of what you sell, or you believe that with the investment, you'll be
able to make more than you would otherwise.

In the case of life equity, the first case is tough to see. If you believed in
your life equity's enough to sell it, you wouldn't sell it. So, you must be
seeking the second case: If only I had more money now, I could make more money
later, greater than the percentage of the funds I need to give back to my
investor. From this we can assume that a potential investor would want a
justification of how you will earn that money. We're effectively reduced to
the same venture funding and loan structures that already exist today.

The only other way life equity would work would be as a scam: If life equity
investors took advantage of bad-at-math or desperate sellers. This is actually
the same as third-world loan sharks, only we're calling it an investment
instead of a loan.

------
goofygrin
There was a commercial that had something to do with insurance or something,
where families were traded like stocks on an exchange.

There have been numerous occasions where I've thought about making something
like this. How do you determine the value of a person or family? Would people
be open to exposing so much details about their lives in order to increase the
"value" of their family/person (like a public company has to open their
books)?

~~~
zellunit
Yea really it is a great question. The valuation is one aspect. The other is
the fact that your incentive to succeed goes down once you get money so the
very moment you get it, you're expected future earnings go down.

It's fascinating to think about though.

------
gojomo
US Fedgov Corp. already has a claim on 10-35% of my life income! I didn't even
sign any contracts.

~~~
mixmax
You got a good deal - the federal claim on my income is more like 60%

------
Alex3917
Someone offered to do this for me a couple years ago. There was an ethical
conflict of interest though so I never actually considered it seriously. I
don't remember what the actual proposal was, but I think it involved an
apartment in Boston with a running tab for a couple years in exchange for some
percentage of whatever I made for the next five or so years.

~~~
hollerith
Besides MyRichUncle, who offered money mostly for college, yours is the only
report I know of someone actually being offered money for a percentage of
future income.

------
edw519
This reminds me of the woman in France who, in her eighties, sold her house to
a man in his fifties. He had to pay her every month until she died and then he
would get the house.

She lived to be 122. He paid for the house 4 times and then died first.

~~~
ed
For the curious, this story is about Jeanne Calment:
<http://en.wikipedia.org/wiki/Jeanne_Calment>

------
byrneseyeview
I'd sell it if I had an option to buy it back.

All of the unresolved questions you have also apply to equity in corporations.
Except that corporations live forever, rather than for seventy years, so the
uncertainty is compounded.

I don't understand the 'corrupt' argument. Do you worry about this with regard
to stocks, too? Does owning AMZN make you 'corrupt' when you ignore Barnes &
Noble?

------
mrtron
I swear you guys read my email. Please stop.

Apr 11 (11 days ago)

for what amount would you sell 1% of your future income? i should set up a
stock market for individuals.... lets say how much would you sell 1% of your
next 10 years income

Response:

Haha that would be interesting.

Of course if someone sells more than 90% of their income, then they probably
won't earn anything :)

~~~
byrneseyeview
Perhaps they were reading my mind when I was thirteen, too.

And then they planted it in Milton Friedman's _Capitalism and Freedom_ , which
somehow has a copyright date from several decades ago.

------
ejs
Sure I'll take a million right now, you can have 5%... if invested wisely the
interest on that is enough for me to live on...

------
vlad
You know, this already existed for 6 years.

<http://en.wikipedia.org/wiki/MyRichUncle>

They had to change their business model because they became way too popular.

~~~
hollerith
Let me clarify that. The Wikipedia article says that MyRichUncle become a
traditional maker of student loans "following an unsuccessful attempt to
secure greater financing". In other words, although they had plenty of young
people who wanted to sell a fraction of their future earnings in exchange for
money now, they could not match those young people up with investors.

They began trying to match young people up with investors for a fraction of
future earnings in 1999 and began making traditional student loans in 2005,
which is where the "6 years" comes in, but during those 6 years they might
have had to turn away most of the young people who wanted money now.

------
elai
How is this an advantage over loans, bonds, scholarships, patrons, angel
investors and all the other investment options people have? Most people don't
want to get a perpetuity as a loan when there are much better options out
there!

------
redorb
I would personally take a minimum to not worry ($1mm) and give out up to
10-15% ... guess I'm a sell out.

------
Hexstream
I'd have a hard time selling my life equity without thinking: "k, I'm
officially someone's bitch."

------
ken
I've heard that some college fraternities do this, but it may have been just a
rumor.

~~~
dkokelley
Some colleges encourage something similar. The Acton MBA program encourages
alumni to sponsor new students so that their education is free (and based
entirely on their ability to be accepted into the program). Once these
students graduate, they are encouraged to turn around and to the same thing
for the students behind them (out of a percentage of their earnings over the
following years, until it is repaid).

It's not exactly the same model, but it does represent a take money now and
payback out of future earnings template.The thing is A: repayment is
encouraged, but not required, and B: the amount taken out of your future
earnings is fixed and will end once paid.

~~~
ken
That sounds a bit different. There's no real risk. The exchange is voluntary,
after-the-fact, and if you make $10B the school doesn't (necessarily) get a
percentage. That's basically a loan: you get school paid for now, and you pay
it back over the next several years.

One or two fraternities, I'd heard, actually have you sign over some small
percentage of your salary (1-2%?) for life. That's equity.

------
rrival
Is there shorting? Can I short sell?

------
nazgulnarsil
sure, I doubt i'd disclose how early i'm planning on retiring though.

