About NEO

The core idea NEO is built upon is described below in the form of an essay.
A more formal treatment of the subject can be found in these white papers (read the more recent one first):

2020 - Merit signal – The Éminence grise of economic systems

2017 - The Merit economy

The real-world implementation of NEO is the Rovas application. You can read the Rovas rules, create an account there, and even start using it by posting your first project and reporting some work in it.

The case for Merit economy
Published first at Medium on Apr 30, 2017

What do we know about Warren Buffett? If a person knows that name, he or she will likely also know that it belongs to one of the wealthiest persons on Earth. Most people would also assume that Mr. Buffett leads a lavish lifestyle one can only dream of. Mr. Buffett, however, pays himself a salary comparable to that of a good Silicon Valley computer programmer and lives in Omaha, in an upper-middle-class house he bought in the 1950s. The co-founder of Duty Free Shoppers Chuck Feeney seems to share the same quirky perspective on wealth as Warren Buffett. He is known to fly coach, shop at retail stores, and "secretly" give the rest of his wealth away through Atlantic Philanthropies - a foundation he created. Examples of frugal billionaires like these can be dismissed as out-of-the-norm behavior of a handful of people if it wasn't for the existence of the Giving Pledge - an initiative established by Bill Gates, asking the wealthy to give at least half of their wealth to charity. By the end of 2016, 139 wealthy individuals and families signed the pledge, including five of the top ten richest. At first sight, this doesn't make sense. The same people who feed an army of financial advisors helping them to acquire and retain as much wealth as possible, want to (often at the same time) give it away, and some of them even ignore the consumption opportunities their fortune provides. Why chase wealth if not for its purchasing power? To find an answer to this question, let's first take a look at the motives that drive individuals to maximize incomes.

It is one of the cornerstones of the neoclassical economic model (the "currently in" description of the economic reality) that the utility a person gains from the consumption of a good or service decreases with the amount consumed. A classic example illustrating the notion is feeding a starving person - sooner or later, consumption leads to satiation. Money, however, is a type of good whose acquisition cannot be described by this rule if certain conditions are true. In particular, behavioral economists found that income from one's own labor does not diminish the desire to acquire more. In fact, the opposite is the case. The higher the monetary reward, the greater the motivation to increase work effort. A notable part of these findings is that people are driven not by the purchasing power (resp. "economic" value) income provides, but by what it represents — a measure (signal) of their competence. Considering that according to the Self-determination theory one's well-being depends on the satisfaction of the basic needs of competence, autonomy, and relatedness, the desire to maximize income is not surprising. Unfortunately, the competence signal is expressed by the amount of income, resulting in a situation where maximizing the signal necessarily leads also to the concentration of economic value, which tends to "morph" into the emergence of economic inequality.

The drive to satisfy fundamental psychological needs also reveals the origin of the puzzling behavior of the rich. The indifference of Warren Buffett toward the economic value of his fortune can be explained if we assume that it is not economic value, but the signaling aspect of income that drives his work effort. The act of giving wealth away through charitable donations should also be seen as a manifestation of a desire to satisfy one's basic psychological needs because sharing is essential for strengthening relationships between people and thus fulfilling another of the basic needs - the need for relatedness. Lastly, the economic value of wealth is often used to buy goods and services that help people raise their position in social hierarchy — yet another manifestation of how economic value ends up being used for psychological signaling.

The takeaway conclusion from these observations is that by and large, it is not economic value, but the self-signaling function of income and wealth that is the most important driver of work effort. Accumulation of wealth is a side effect, attributable to a particular work reward mechanism in which the two components of reward are fused together. This conclusion leads to an interesting question: would people be willing to work also for a reward lacking economic value if the signaling component was present? Can examples of such a mechanism be found "in the wild"?

The answer is affirmative, and the evidence is significant. More than a billion volunteers generate every year economic value that would place hypothetical Volunteerland among the top 10 countries by GDP. The Wikipedia editors, Linux operating system programmers, or volunteers maintaining hiking trails in Oregon, not unlike the workers of the "normal" economy, are also motivated by the signaling component of reward. Yet, volunteers — by definition — work for no economic value in return. The psychological roots of work effort motivation, as well as the very existence of the volunteer economy, should therefore make for a believable argument that it is not necessary for a well-functioning system to use a reward mechanism where the two components are inextricably linked.

How could an economic system implementing these ideas look like? First, the signaling component of reward must be uncoupled from anything directly economically valuable. Examples of such constructs can be found in the internet domain: reputation scores, badges, or "likes" are all numeric representations of some non-tradable personal quality, presented in a psychologically effective form. In our hypothetical "merit" economy, the signaling reward is also a number, with its value equal to the magnitude of income a worker would earn in the capitalist system. With the behaviorally salient signaling component separated from the economic value, the latter can be set to be distributed virtually equally — the way most people would prefer — without compromising the incentives to work and innovate. Combined with other rules, an economic system emerges, identical to capitalism in the way the self-signaling component is determined, but one that (among other benefits) virtually eliminates the problem of economic inequality.

How does our Merit economy compare to other proposals attempting to solve the related problems of growing income inequality and the threat of massive job losses caused by technological advances? The main obstacle standing in the way of their advancement is a lack of concern for the behavioral aspects of income and wealth. For example, the usual argument against the most-often cited tool aimed at fixing economic inequality — taxation — is its negative effect on worker motivation to innovate, resulting in constrained economic growth. As argued above, however, taxation lowers the self-signaling component of income, explaining the unpopularity of this approach. Opposition to the institution of the Unconditional Basic Income can also be understood from the signaling-violation perspective. The main problem with the proposal is funding, which usually calls for some form of (merit-reducing) taxation, but a fair amount of resistance likely originates from a different manifestation of the same problem. Research shows that handing money to everybody might be perceived by people as a disruption of their place in social hierarchy. The effect can be seen in the dissatisfaction of some of the least-paid employees of Walmart after they learned that management decided to raise the minimum wage throughout the company. Suddenly, the employees who previously earned a bit more than the least-paid ones were earning the same amount, which they interpreted as a demotion.

It should be apparent that taking into account the dual function of income and wealth can improve the chances for adoption of any redistribution proposal attempting to address shortcomings of the capitalist economic model. However, a better option to waiting for the governments to deliver a fix for the existing system might be to build a new one. The new system can be built by a small group of dedicated individuals and started the same way money once appeared on the economic scene — by being adopted on the basis of its merit, by the people themselves.