Abramitzky: 'Beyond all these non-economic reasons that you give me for why it makes sense for you to create a kibbutz, I think there is also economic sense to create a kibbutz, in the sense that a kibbutz provides you with very valuable insurance.'
So, it's a safety net: insurance against any sort of idiosyncratic shocks to your income. So, in the kibbutz you know that you and your family will always be getting paid the same, and especially in a world of undeveloped insurance markets in Israel – Palestine, Israel – at the time , this is a very attractive form of insurance... by the way, it remains a good insurance even when insurance markets are developed, because, for example there is no insurance against human incompetence.
But then, of course, he would point out that there are all these problems – free riding, and brain drain, and adverse selection ... 'Well, the first thing that will be great for you is if you can make sure the people are really idealistic.' So, idealistic people, whether [they're] socialist or just people who are very committed to the idea of a kibbutz, they don't share, they don't free ride, they don't leave. They just stay and work very hard.
'Make sure that you have an education system that convinces the later generations that this is great. Make sure you have idealistic people,' and so on.
'But, do not just trust the human nature of people to be like idealistic. Because as typically happens, second and third generations will typically become less idealistic, because for them, living in a kibbutz is a default rather than a choice, like it was for the founders of kibbutzim. And so, if you want to design a system that will make sure that they respond well to incentives, well, let's start with the free rider problem.'
So, we know that there is not much motivation for people to work hard if they don't get the full monetary returns to their education. But, how about social sanctions and peer pressure? And everybody familiar with a kibbutz knows that they wouldn't sit next to you in the dining hall if you are perceived to be shirking. They can make your life sufficiently miserable that you might leave. But for that to work, you need to make sure that the communities are small enough, because social sanction, peer pressure, are more effective in small communities.
You have to make sure that there is not much privacy, so everybody knows the coming and going of people... in the kibbutz, if you want the social sanctions to be effective, you need to make sure that people have not much privacy and that social sanctions are effective. Everybody knows everybody. They repeatedly interact with one another. They go to the same school. They work in the same place...
They also want to have social rewards. So, rather than having one leader that will lead the kibbutz forever, they have rotation in leadership. And they rotate who is the Secretary, the Kibbutz Manager, the Farm Manager, to make sure that they reward people who are perceived to be bigger contributors to the community...
What about brain drain? ... how about we make exit costly? So, for example, if all property belongs to the collective and there is no private property, that means that it's very hard to leave. Because, once you leave, you can only take with you your brain; but you can't take with you your share of the kibbutz. And so, lack of private property made it more costly for people to move away from the kibbutz.