Shares in people

What's the difference between people and companies? That's the question raised by rounders baseball player Randy Newsom's offer to sell shares of his future income (via).
Why isn't this more common? Why shouldn't doctors, lawyers and university students generally finance their education by issuing shares rather than debt? Why should it be only companies who have the luxury of being able to choose how they are financed?
(Of course, the Miller-Modigliani theorem says it shouldn't matter how people or firms are financed, but leave this aside).
The answer can't be that people are risky investments. Have you seen some of the rubbish quoted on Aim? Indeed, the most obvious risks to Mr Newsom's income - injury, loss of form - should be attractive to equity investors because they are uncorrelated with market risk. On this count alone, there should be decent demand for such shares.
Ideally, this would be a backdoor way of introducing macro markets. Enterprising young people might follow Mr Newsom's lead and issue shares in themselves. These could then be bundled together and sold as ETFs on (say) doctors' or lawyers' or even just graduates earnings. We'd then have markets in occupational earnings, allowing people in those occupations to reduce risk by shorting the ETF.
So why doesn't this happen? The problem, I suspect, is counterparty risk.  People who had sold shares in themselves and become successful might insist on being paid in kind (or take leisure), thus depriving shareholders of income.
But is this really an insuperable problem, which can't be solved by careful contract writing? And is it really sufficient to make people very different from companies, which have ways of chiselling cash out of minority shareholders? I'm not sure.
What I do know, though, is that there's one organization that does hold shares in people - the state. You can think of income tax as a form of dividend payment on your human capital. Why should it be only the state than can receive such dividends?

Comments

[Theophile Escargot]

Isn't this just a watered down form of debt bondage?

What happens if you decide you don't want to be a doctor or lawyer anymore, you want to drop out and become a Buddhist monk?

Or what about if you just change your mind and decide you don't want the investors to take 10% of your income?

If there's no coercion, it doesn't seem like a very attractive investment, since the doctor/lawyer can just change his mind and stop paying.

If there is coercion, then you're back to debt bondage.

I think an individual has human rights that a company does not. Libertarians would disagree, but I think that should include a right to break out of very long-term contracts.

[Mike Woodhouse]

If you bundle a group of people and sell shares in them, reducing the counterparty risk somewhat by introducing a legal umbrella-ish structure, why bother with the problems associated with selling it as a fund? You could call it something whacky like, oh, a "company".

And there are thousands of individuals trading through limited companies already. I've been one myself on a couple of occasions: although I didn't actually sell any shares in my company there was no legal restriction on my doing so.

I think the State-individual relationship is more along the lines of a swap than a share-holding one.

Still, something to ponder on over lunch.

[Mark Harrison]

I've no objection "in principle" to that kind of macro market.

Isn't the major practical problem as simple as "lack of sellers"?

My (unsubstaniated) hunch is that the vast majority of young lawyers, doctors, CTOs and fund traders would be sufficiently optimistic about their prospects to consider entering into such a trade at the beginning of their careers to be a wildly bad bet.

The other issue, which IS well documented, is that those who receive a lump inheritance at the beginning of their careers tend to do much worse in earnings than those who start with nothing. It's not the hazard of becoming a monk that worries me, but the hazard of becoming a "lazy lawyer".

[Nick Rowe]

If I buy a (voting) share in a company, I also get some control over how that company uses its resources.

If I buy a share in Randy Newsom, I (presumably) get no control over how he uses his resources.

Shares in human capital are like non-voting shares.

[TimW]

Along similar lines, I have been wondering recently whether the law should be changed to allow younger persons (of school-going age) to take on debt to fund their secondary education.

It seems ridiculous to me that children have no control over the one factor which shapes their lives to the greatest degree. Therefore allowing children to take on debt to move to the local private school (for example) would be a welcome move.

Together with school fee vouchers, would there be a problem with this?