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Citizen Contract 

A Citizen Contract is an important institutional innovation introduced in the Free Private City model. Governance systems based on a Citizen Contract have several important advantages over traditional constitutional governance systems. 

The key difference in contractual systems is that the “government service provider” of a city cannot increasingly take on more powers and interfere with residents’ lives. Constitutions can be changed, even against the will of the individuals they impact, provided there is a majority that supports such changes. Contracts, on the other hand, can only be amended if the contracting parties agree. That is why it is crucially important that a contract is established with each individual—because each citizen thus gains the corresponding legal position.  

Conventional constitutional systems portray co-determination bodies such as parliaments as one of their greatest advantages. However, these advantages are rendered obsolete in contractual systems. Such cities are created to enable the greatest possible degree of self-determination, not the greatest possible degree of co-determination. If everyone is free to decide what they want to do and how they want to live, the raison d’être for parliaments is removed. 

In contractual systems, any citizen with a Citizen Contract can sue or withhold payments from the “government service provider” if he or she believes that the contract is not being properly fulfilled. In constitutional systems, the individual citizen usually does not have the right to bring legal action against the state if it does not fulfill its tasks properly; and they certainly do not have the right to withhold tax under any circumstances. Compared to a constitutional system, the residents of contractually governed cities are in a much stronger legal position.

City Operator 

In some Free Cities models, the city is governed not by a traditional government but by a private company which can then be called the City Operator. 

In cities administered by a City Operator, the incentives of the “government service provider” and the citizens are better aligned than in the case of traditional city governments. While officials in traditional systems do face some pressure to perform well – namely, they usually want to be re-elected – these pressures only force them to take steps to perform well in elections, not in the actual administration of the city. As popularity contests, election results are typically not representative of how well the candidates might have performed in the management of the city but how likable, charismatic, or willing to spend on campaigns these candidates are. 

In contrast, if the City Operator is a for-profit company, its chief goal is to generate long-term revenue and return on investment. Should a city be mismanaged, the Operator’s money and source of revenue are directly on the line. The only way a City Operator can be profitable in the long term is to govern the city well, fulfilling the demand and preferences exhibited by the city’s population. If people are happy in the city, the city attracts new residents and businesses, driving the value of the city up. In short, the incentives of the Operator and the residents are fully aligned: if the city prospers, the Operator prospers too, and for the Operator to prosper, the city needs to prosper first. 

The profit motive of the City Operator is also a solid safeguard against corruption and abuse. In traditional systems, there is little to stop the government’s representatives from treating their citizens badly or unfairly. Such behavior, however, would generate immediate backlash in the case of an operating company, which would have direct adverse effects on the attractiveness and valuation of the city by potential residents and businesses, harming the Operator’s bottom line. 

It is unreasonable to expect organizations (whether governments or companies) to always behave in an ethical way. That is why it is important that the incentive structure is aligned in a way that unethical or undesirable behavior results in financial losses. The strong power of the profit motive can be utilized in governance systems for the benefit of the public and the common good.

Polycentric Law 

Polycentric Law is a legal structure in which “providers” of legal systems compete or overlap in a given jurisdiction. This is as opposed to monopolistic statutory law under which there is a sole provider of law for each jurisdiction. 

In most industries across the economy, it is widely acknowledged that competition fosters productive innovation that ultimately drives the prices of products down and their quality up. When an industry is monopolized, the inverse happens over time, where due to the lack of competitive pressure, the price rises and quality deteriorates. There are industries, however, where this economic law is not widely recognized as applicable. The provision of law and order is one of those industries. This is the disparity that polycentric law addresses. It regards the legal services that governments provide—defining rules, policing their application, and settling disputes—as a ripe field for competition. When a government claims a monopoly in the law, this crucially important service ends up being sub-par, with all of society being the victim. 

Polycentric law has several advantages over monopolistic systems. Firstly, it allows for greater flexibility and adaptability in the legal system. Because there is no single source of law, different legal systems can evolve and adapt to changing circumstances in different ways. This can lead to more innovative and effective legal solutions. 

Secondly, polycentric can lead to greater accountability and responsiveness in the legal system. When there are multiple providers of legal services, each provider is accountable to its customers and must compete with other providers to attract and retain customers. This mechanism leads to a more responsive and customer-focused legal system. 

Finally, polycentric law can lead to greater protection of individual rights and freedoms. In a polycentric legal system, legal systems are created and maintained by private individuals and organizations, not by the state. When a legal system is customer-oriented rather than state-oriented, the citizens’ needs and requirements end up being a priority, with their individual rights being much better protected than in systems where people cannot choose.  

We can already see examples of how this system can work in some sectors of today’s society. Services in the ‘sharing economy’ such as Uber are based on providing a non-regulatory platform where individual service providers (taxi drivers) are not regulated centrally by the platform itself but by the customers/users through a reputation-based competitive system. The same quality assurance mechanism is applied to law in a polycentric legal system.

Regulatory Flexibility

Traditional governance systems usually feature a fixed set of regulations that all individuals or companies have to follow. These rules and regulations are therefore necessarily made in a one-size-fits-all way, which, rather than channeling entrepreneurial activity toward activities that benefit society (the purported goal behind regulation), end up stonewalling much of society’s potential and preventing its progress and development. 

The crucial question in today’s economies is not whether something is regulated but who regulates and how. Regulation at a municipal level, for example, can allow a better fit for the needs of local individuals and businesses. However, at the same time, local and fragmented regulation also harms effective economies of scale, as larger businesses have to adapt locally rather than operate in the same way regardless of location. 

Próspera, a Zone for Employment and Economic Development and a Special Administrative Region in Honduras, has introduced an innovative solution to this problem. Businesses in Próspera can choose how they want to be regulated from a set of three options. 

1. They can choose to be regulated by Honduran law or the law of any OECD country. 
2. They can operate under the Common Law, but in that case, they have to procure insurance that covers triple liability and injunctive relief. 
3. They can propose their own custom regulatory package that is on par with international best practices, which will then be available as an option to any future firms in the industry in Próspera. 

Often, the phrase “regulatory flexibility” is used as a euphemism to mean the absence of regulation. In Próspera’s case, however, regulation is truly flexible (can be tailored to the needs of a particular business) while not compromising on strength or quality. 

3D Property Rights 

3D property rights are an innovation in governance that has been in use in many traditional jurisdictions but has not yet become the industry standard. 3D property rights allow a jurisdiction to define ownership above and below ground, not just flat parcels. This offers property owners more control and flexibility over the use of their property. 

This approach is particularly useful in dense urban areas where there is a strong need to maximize the use of available land, but where growth needs to be properly mediated at the same time to ensure that the interests of all relevant parties are taken into account. 

3D property rights, supported by the appropriate technical solutions, allow for things like views, landscapes, sunshine, and vistas to be marketed and priced, whereby their true value for the people involved can be found. In this way, 3D property rights can facilitate significant wealth creation by enabling mutually beneficial trade in new areas and simplifying market processes.