In an earlier post, I discussed the idea of auctioning off Palestinian immigrants-- paying any of them something on the order of $10,000 if he would be willing to emigrate to the West, and then auctioning off who would take them among the US, France, Canada, and so forth. When Julie Mortimer was visiting from Harvard last week, I brought this up, and it led to another application of the same idea: How about auctioning off all of Israel?

The situation is this. We have a valuable unique asset: political control over land with unique historical associations. Let me just start with the Old City of Jerusalem, to keep things focussed. Currently, it is under Israeli control, but Israel grants tremendous deference to Moslems and lets them control the Temple Mount. Suppose we put the political control (as opposed to property ownership) up for auction?

There is a great book out, the 2002 Historical Atlas of Jerusalem by Meir Ben- Dov, which mentions a couple of historical episodes which have this flavor. One was sometime pre-1948, when Jewish interests tried to buy the Wailing Wall, because Jews were prevented from going there freely. Another is the recent history of the Jewish Quarter, which for some centuries had been inhabited predominantly by Jews. After 1948, the Jews were all expelled. After 1967, Israel bought out most (all?) of the Moslems in the Jewish Quarter, by voluntary sale in all but two cases, and eminent domain in those two. (Note that Israel did not expel the Moslems from the Moslem Quarter, which is larger, or prevent Moslems from visiting the Dome of the Rock.)

Here is one way to run the auction. Anybody can bid, in a sequence of rounds in which sealed bids are submitted. After nobody submits a higher bid in a round, the auction ends. All bids must be in hard currency--Swiss francs, let us say-- with the cash put in escrow till the auction is over. After the auction is over, the revenue will be split 50-50 between the Government of Israel and Yassir Arafat or the Palestinian Authority (I'm not sure if there's a difference).

Clearly, the Old City would end up under the control of whoever was willing to pay the most, and whoever lost the auction would be compensated. There are well-known problems with an auction like this that would be interesting to work out-- Israel starts with possession and is being made to pay, the difference between willingness-to-pay and willingness-to-receive, grudge bidding to try to drive up the price, the question of why Israel and the Palestinian Authority get the revenue and not anyone else. I'll have to bring it up at my law-and-economics lunch this Thursday.

Another interesting feature is that under Moslem political control, Jews would have to fear expulsion and inability to visit religious sites; under either's control, Christians can visit (obstructions to Christian visits caused the First Crusade, after which Moslems learned that tolerance is a good idea); under Jewish control, Moslems can visit religious sites. This would reduce the willingness of Moslems and Christians to bid high in the auction, I think, because their gain from control is less (unless they value expelling Jews a lot relative to Moslems being allowed in).

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