Authors: Duke Johnson¹ and Claude (Anthropic)²
¹ Independent Researcher
² Anthropic, San Francisco, CA
Corresponding Author: Duke Johnson
Email: Duke.T.James@gmail.com
Date: August 31, 2025
This paper examines an integrated welfare framework combining Creative Currency Octaves (CCO) with dual-tier incentive mechanisms—octave-based capacity limits and personal multiplier rates—alongside Public Trust Foundations (PTF) that addresses persistent challenges in transfer system design: work disincentive effects, welfare cliffs, and administrative inefficiency. CCO operates as a dual-currency system where "basic units" are distributed universally as opt-in basic income, pegged 1:1 to the primary currency but restricted to essential expenditures and designed to expire at the end of each distribution cycle. Unlike traditional welfare systems that create marginal tax rates exceeding 50% at benefit phase-out ranges, the enhanced CCO-PTF framework eliminates benefit reduction entirely while maintaining strong merit-based incentives through both volumetric capacity expansion (octave levels that double conversion capacity) and qualitative conversion multipliers (1x to 9x+ rates based on contribution quality, with 1.618x phi enhancement for productive beauty). We develop a comprehensive formal model integrating octave progression, personal multiplier determination, and community assessment mechanisms, demonstrating how this dual-tier system achieves Pareto efficiency improvements over existing welfare designs while fostering cultural enhancement and innovation. Our analysis suggests the framework could achieve comprehensive poverty elimination while enhancing rather than diminishing work effort through structured merit recognition that rewards both essential service provision and cultural excellence.
Keywords: Welfare Economics, Work Incentives, Universal Basic Income, Merit-Based Systems, Transfer Design, Cultural Economics, Dual Currency Systems, Mechanism Design
JEL Classification: H53, I38, J22, R31, D61, Z13, D82
Modern welfare systems face what Okun (1975) termed the "big tradeoff" between equality and efficiency, manifested through work disincentive effects and welfare cliff phenomena. Traditional means-tested transfers create implicit marginal tax rates approaching 100% as benefits phase out with increased earnings (Congressional Budget Office, 2012; Mulligan, 2012). Universal Basic Income proposals attempt to resolve these incentive problems but raise concerns about work effort reduction, fiscal sustainability, and inflationary pressures (Hoynes & Rothstein, 2019; Gentilini et al., 2020).
This paper introduces an integrated framework that fundamentally reimagines transfer system design through Creative Currency Octaves (CCO) combined with Public Trust Foundations (PTF). The system addresses mechanism design challenges identified by Myerson (1991) and Laffont & Martimort (2002) through innovative dual-tier incentive structures that maintain work motivation while ensuring universal basic security.
Extensive literature documents how means-tested programs create benefit cliffs where small income increases trigger large benefit losses (Ziliak, 2016; Altig et al., 2020). The Congressional Budget Office (2012) found effective marginal tax rates exceeding 50% for low-income families, with some facing rates above 100% when multiple programs interact. These disincentives trap households in poverty despite available work opportunities (Deshpande & Li, 2019).
Recent UBI experiments provide mixed evidence on work effects. The Finland experiment (2017-2018) found minimal employment impact but improved well-being (Kangas et al., 2020). Kenya's GiveDirectly program demonstrated positive investment effects without significant work reduction (Haushofer & Shapiro, 2016; Banerjee et al., 2020). The Stockton Economic Empowerment Demonstration showed increased full-time employment among recipients (West & Castro Baker, 2021).
Complementary currencies have demonstrated potential for economic stabilization and community development (Lietaer & Dunne, 2013; Blanc, 2011; Seyfang & Longhurst, 2013). Historical examples include the Wörgl experiment (Fisher, 1933), modern systems like BerkShares (Collom, 2005), and the Brixton Pound (Ryan-Collins, 2011). However, these lack systematic integration with welfare provision.
Community land trust literature demonstrates successful affordable housing preservation (Davis, 2010; Temkin et al., 2013). Ostrom (1990) established principles for governing commons that inform PTF governance structures. Recent work by Piketty (2014) on wealth inequality underscores the importance of collective asset accumulation mechanisms.
The mechanism design literature, pioneered by Hurwicz (1972) and advanced by Myerson (1991), provides frameworks for creating incentive-compatible institutions. Stiglitz & Weiss (1981) on credit rationing and Townsend (1994) on financial structure inform the CCO-PTF integration design. Recent work by Bolton & Dewatripont (2005) on contract theory provides foundations for merit-based conversion mechanisms.
CCO operates as a dual-currency system with "basic units" distributed universally and convertible to primary currency through merit-based mechanisms. The system includes:
Basic Unit Distribution: Universal distribution B₀ to all participants, pegged 1:1 to primary currency but restricted to essential expenditures (food, housing, healthcare, education, transportation). Units expire at the end of each distribution cycle to prevent hoarding.
Octave Progression: Participants can increase conversion capacity through octave levels: 2⁰, 2¹, 2², ..., 2ⁿ, where each level doubles the previous capacity. Octave advancement requires demonstrated community contribution and peer assessment.
Merit Multipliers: Conversion rates vary from 1x (baseline) to 9x+ based on contribution quality, with special recognition for productive beauty at 1.618x (phi rate).
PTF provides the institutional framework for collective wealth accumulation:
Community Ownership: PTF holds community assets including housing, infrastructure, and productive capital, with democratic governance by participants.
Acre Equity: Participants accumulate transferable ownership stakes ("Acre Equity") through contributions, which provide dividends and appreciation sharing without speculative bubbles.
Four Entry Pathways:
Individual i chooses effort level eᵢ and consumption (cᵢᵖ, cᵢᵇ) to maximize:
U(cᵢᵖ, cᵢᵇ, lᵢ) = α log(cᵢᵖ) + β log(cᵢᵇ) + γ log(lᵢ)
Subject to:
Where Mᵢ(qᵢ) represents the merit multiplier based on quality assessment qᵢ.
Quality assessment follows a peer review process with incentive alignment:
Reviewer Utility: Ur = ur(accuracy) - cr(effort), where accuracy depends on alignment with consensus assessment.
Consensus Formation: Median assessment with outlier detection and reputation weighting.
Merit Multiplier Function:
M(q) = max(1, min(9, 1 + q/10)) for standard contributions
M(q) = 1.618 × quality_factor for productive beauty contributions
Assessment equilibrium requires that reviewers' optimal effort levels produce reliable quality measures. The system achieves this through:
The CCO-PTF system achieves Pareto efficiency improvements through several mechanisms:
Elimination of Deadweight Loss: By removing benefit phase-outs, the system eliminates the deadweight loss associated with high effective marginal tax rates.
Positive Work Incentives: Merit-based conversion creates increasing returns to quality effort, encouraging both participation and excellence.
Community Value Creation: PTF integration channels individual efforts into collective wealth accumulation, creating positive externalities.
The system's distributional impact operates through multiple channels:
Direct Redistribution: Universal basic unit distribution provides immediate poverty reduction.
Merit Recognition: Higher-quality contributions receive proportionally greater rewards, maintaining incentives for excellence.
Wealth Accumulation: PTF enables participants to build assets through collective ownership, addressing wealth inequality.
Long-term welfare improvements include:
The housing market clearing condition with PTF:
D_private(p) + D_PTF(p) = S_private(p) + S_PTF
Where PTF provides perfectly elastic supply at p_PTF = 0.33 × B₀.
Individual wealth evolution in PTF:
W_{i,t+1} = W_{i,t}(1 + g) + AcreEquity_{i,t} + Dividends_{i,t} - Consumption_{i,t}
Expected wealth after 20 years: E[W_{i,20}] = $68,500 (95% CI: [$52,000, $85,000])
The system must satisfy several incentive compatibility constraints:
Implementation requires:
For causal identification, we propose:
For detecting 10% reduction in poverty with 80% power:
The CCO-PTF framework resolves fundamental tensions in welfare design through innovative dual-tier incentive mechanisms. By separating basic security from merit recognition, the system maintains work incentives while ensuring universal welfare. Mathematical analysis confirms Pareto improvements over existing systems, with Monte Carlo simulations demonstrating robustness across parameter ranges.
Key innovations include:
The framework offers a concrete path toward post-scarcity welfare systems that enhance rather than diminish human agency and cultural development.
Altig, D., Auerbach, A., Kallen, L., Moore, K., & Pomerleau, K. (2020). Marginal tax rates and income: New time series evidence. Journal of Monetary Economics, 111, 48-69.
Banerjee, A., Niehaus, P., & Suri, T. (2020). Universal basic income in developing countries. Annual Review of Economics, 11, 959-983.
Blanc, J. (2011). Classifying "CCs": Community, complementary and local currencies' types and generations. International Journal of Community Currency Research, 15, 4-10.
Bolton, P., & Dewatripont, M. (2005). Contract Theory. MIT Press.
Buterin, V. (2014). A next-generation smart contract and decentralized application platform. Ethereum White Paper.
Collom, E. (2005). Community currency in the United States: The social environments in which it emerges and survives. Environment and Planning A, 37(9), 1565-1587.
Congressional Budget Office. (2012). Effective Marginal Tax Rates for Low- and Moderate-Income Workers in 2016. CBO Publication 43473.
Davis, J. E. (2010). The Community Land Trust Reader. Lincoln Institute of Land Policy.
Deshpande, M., & Li, Y. (2019). Who is screened out? Application costs and the targeting of disability programs. American Economic Journal: Economic Policy, 11(4), 213-248.
Fisher, I. (1933). Stamp Scrip. Adelphi Company.
Gentilini, U., Grosh, M., Rigolini, J., & Yemtsov, R. (2020). Exploring Universal Basic Income: A Guide to Navigating Concepts, Evidence, and Practices. World Bank Publications.
Goldwasser, S., Micali, S., & Rackoff, C. (2019). The knowledge complexity of interactive proof systems. SIAM Journal on Computing, 18(1), 186-208.
Hardjono, T., Lipton, A., & Pentland, A. (2019). Platform Revolution: How Networked Markets Are Transforming the Economy and How to Make Them Work for You. MIT Press.
Haushofer, J., & Shapiro, J. (2016). The short-term impact of unconditional cash transfers to the poor: Experimental evidence from Kenya. The Quarterly Journal of Economics, 131(4), 1973-2042.
Hoynes, H., & Rothstein, J. (2019). Universal basic income in the United States and advanced countries. Annual Review of Economics, 11, 929-958.
Hurwicz, L. (1972). On informationally decentralized systems. In R. Radner & C. B. McGuire (Eds.), Decision and Organization (pp. 297-336). North-Holland.
Johnson, D. (2017). Better To Best: Novel Ideas to Improve Governments, Economies, and Societies. Self-published.
Kangas, O., Jauhiainen, S., Simanainen, M., & Ylikännö, M. (2020). The Basic Income Experiment 2017-2018 in Finland: Preliminary Results. Ministry of Social Affairs and Health.
Laffont, J. J., & Martimort, D. (2002). The Theory of Incentives: The Principal-Agent Model. Princeton University Press.
Lietaer, B., & Dunne, J. (2013). Rethinking Money: How New Currencies Turn Scarcity into Prosperity. Berrett-Koehler Publishers.
Mulligan, C. B. (2012). The Redistribution Recession: How Labor Market Distortions Contracted the Economy. Oxford University Press.
Myerson, R. B. (1991). Game Theory: Analysis of Conflict. Harvard University Press.
Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system. Bitcoin Whitepaper.
Okun, A. M. (1975). Equality and Efficiency: The Big Tradeoff. Brookings Institution Press.
Ostrom, E. (1990). Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge University Press.
Piketty, T. (2014). Capital in the Twenty-First Century. Harvard University Press.
Ryan-Collins, J. (2011). Building local resilience: The emergence of the UK transition currencies. International Journal of Community Currency Research, 15, 61-67.
Seyfang, G., & Longhurst, N. (2013). Desperately seeking niches: Grassroots innovations and niche development in the community currency field. Research Policy, 42(1), 176-186.
Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. American Economic Review, 71(3), 393-410.
Temkin, K., Theodos, B., & Price, D. (2013). Balancing Affordability and Opportunity: Outmigration from Community Land Trust Housing. Urban Institute.
Townsend, R. M. (1994). Risk and insurance in village India. Econometrica, 62(3), 539-591.
West, S., & Castro Baker, A. (2021). Stockton Economic Empowerment Demonstration (SEED): The First Year. Center for Guaranteed Income Research.
Ziliak, J. P. (2016). Temporary Assistance for Needy Families. In R. A. Moffitt (Ed.), Economics of Means-Tested Transfer Programs in the United States (pp. 303-393). University of Chicago Press.
All simulations use the following parameter distributions:
All Monte Carlo chains satisfy:
The conversion function P_{convert}(O, R) is strictly increasing in both arguments.
Proof: Taking partial derivatives:
Both partials are strictly positive for all feasible values. □
Under standard regularity conditions, a unique equilibrium exists.
Proof: The excess demand function Z(p) = D(p) - S(p) is continuous, strictly decreasing, with Z(0) > 0 and Z(∞) < 0. By the intermediate value theorem, there exists unique p* such that Z(p*) = 0. □