or another could be growth?
if he had a progeny who had a better idea about growing the networth.

You see all of them depend on what the other 3 valid choices are

A smart person may consider choices beyond his progeny

As the Americans Gates and Buffet have shown.

Socialist’s Solution: Give X to the poorest(by income) and watch its value being obliterated. The story goes: you feed a fish to a poor man and he will eat for today. But if you teach him to fish he will eat for the rest of his life.

Capitalist’s Solution: Give X to maximize utility, that is maximum returns at a minimum cost (low risk investment). In this case hopefully your utility is the pleasure derived from seeing object X being utilized most efficiently. But again the decision to utilize object X remains in the hands of A, B or C. One could calculate the utility by using indifference curves and income lines and see where would they intersect. Although there is no point in getting into utility functions here as this may be beyond the scope.

My solution: Impose rules of engagement before gifting object X. These rules are derived from the motivation to see best usage of object X. Motivation may include transfer of wealth or knowledge created indirectly as a result of utilizing the object or merely encouragement of responsibility. If objectives are not met in a certain time frame the object is handed to the next best person and so on.
Best case scenario: Object X provides maximum utility to A, B and C.
Worst case scenario: Object X changes hands very frequently and looses its value gradually.

In the end you will be more satisfied to see object X being utilized by all three A, B and C through a “multiplier effect”. Moreover, your satisfaction will also be a function of how committed you remain to this process.

Cheers…

Previous post: « A Trivial Economics Question

05. Jan ‘07 6:01 pm [...]

Cheers,
Kumar

1. None. In this case, X can be sold out and the gains distributed amongst the potential inheritors based on a math that everyone agrees on (if one of the inheritors, say, has invested huge amounts in X or in the parents’ healthcare, then s/he might have a valid argument in demanding more). This also avoids bitter vibes in the property.

2. 1 or more get it. The issue would be to decide who get it. One option is to treat it as an equity asset (not sure whether this is the right term for it) with each person having a share in it. The person who is willing to stay in it, handle maintenance and other details would be a greater shareholder. Transactions on the property would require the ok of all the people on the “board”. If more than one person wishes to occupy it then the house needs to be suitably divided or modified/renovated to accommodate the families.

There are contradictions when you say you want to be fair.

Say A and B are fairly well-to-do but C is not. What if giving it to C disproportionately increases his wealth and puts him above A and B? More importantly, what if this fact is not apparent at the time of distribution? See, the problem takes on new hues if it is given that the value of X would persist or increase over time (it is something like land/gold).

For the sake of the problem, we will assume that X would be void after sometime (it is a ticket to the superbowl or a concert). In such a case, I would give it to someone whom I think will derive maximum value from it.

The first comment (by M) correctly notes a near universal condition: property disputes do become nasty. At times it gets so nasty that parties acquire weapons of mass destruction to sort out the issue. Fighting is economically wasteful. If the property rights were “well-defined,” and there is a way to enforce those rights, there will be less waste.

Well-defined property rights and enforcement mechanism reduce transaction costs. And at the end of the day, it is transaction costs all the way. People blackmailing others by threatening to starve themselves to death (mahatma mamata) adds sand to the wheels of industry. Industry produce stuff, which means income, which means less poverty.

Capriguy’s solution is elegant. I have seen it done before. Demolishing the old house and building a set of identical apartments has the advantage of upgrading the improvements on the land. If any of the inheritors cannot afford to pay for a new apartment, then the solution is to sell their share to a third party.

I don’t think the renting out the property qualifies as a solution since the problem has been defined such that the property has to be divided. For instance, it could be that if I get my share in cash, I would invest it elsewhere.

I am still waiting for someone to address the more interesting question: how do I decide whom to give X to?

The “sell their share” idea may not be feasible since no one sibling may be able to afford it right now.

The “division of the house” idea may or may not work depending on the way the house is built i.e. there may not be an equal distribution possible.

The “demolish and build apartments” idea means that you lose out on the potential increase in value of the house over time.