As a young woman in the 1930s, Professor Ran Abramitzky's maternal grandmother fled mounting anti-Semitism in her native Poland to join her high-school sweetheart in Israel at the fledgling settlement Kibbutz Negba. Several years later, her birth family perished in the Holocaust. A few years after that her husband died while serving in the Israeli army, leaving her with two children.

It turned out that joining a kibbutz had been a wise move. Like a large surrogate family, the commune buffered her from misfortune and provided for her through her final years. Though she'd worked all her life as a simple seamstress, Abramitzky's grandmother died with round-the-clock nursing care delivered with the kind of compassion money can't buy.

His grandmother's experience deeply touched Abramitzky, an assistant professor of economics at Stanford. A Jerusalem native with fond childhood memories of visiting relatives on their kibbutzim, he has been studying the economics of these voluntary communes since grad school. "There's no other place you want to die rather than the kibbutz," Abramitzky says, his dark humor more a jab at death than a back-handed comment on kibbutz life.

Founded on socialist and Zionist ideals, the kibbutzim have always promised to give to all members according to their needs. Yet the principle of egalitarianism—whereby every job from manager to farm hand pays the same wage—makes the communes' continued existence a puzzle, especially to a contemporary economist. "Why would anybody work hard if all you get is 1 over N of the total output?" Abramitzky reasons. "And if anybody thinks he's going to earn more than the average, why wouldn't he exit to Tel Aviv?"

Communes also have to contend with adverse selection, the tendency to disproportionately attract the wrong people. As Abramitzky puts it, "If somebody is starving outside the kibbutz, or doesn't have any job, or is just very lazy, entering a kibbutz is the perfect thing."

These problems seem like a recipe for economic collapse, as they have been for communes throughout history. Yet kibbutzim, which today are home to 2.6 percent of the nation's Jewish population (and 1.6 percent of all Israelis), have endured since the movement began in the early 20th century. In fact, whether growing produce or making plastics, kibbutzim supply more than 9 percent of the country's industrial sales and a whopping 34 percent of agriculture. They have not only survived; they've contributed more than their share. What's their secret?

That's the question at the heart of Abramitzky's research. "Ran was able to take a topic that everybody was familiar with, and to expose the general lessons that come out of this particular experience," says Israeli-born economic historian Avner Greif, a Stanford professor. These lessons apply just about everywhere people form economic units, from families and professional partnerships to the member nations of the European Union and to governments setting tax, welfare and immigration policy.

"It's much more broadly interesting than the kibbutz," says MIT economist David Autor, who's published some of Abramitzky's findings in the Journal of Economic Perspectives. "The kibbutz is almost like a laboratory for learning about incentives in a place where they're not meant to take a big part."

When Abramitzky began his research in 2000, economists hadn't studied modern kibbutzim in depth, and some colleagues found the subject rather provincial, as if he were investigating whether farmers were milking cows efficiently. But encouraged by enthusiasm from his dissertation adviser at Northwestern, Abramitzky proceeded to test his hunches, poring over decades of census data in Israel's archives.

LIVING LAB: Abramitzky learned much about incentives by studying kibbutz life. (Photo: Linda A. Cicero) One of the economist's early insights was that joining a kibbutz was a sensible choice even for self-interested individuals—especially the pioneering settlers, for whom the Promised Land was full of unknowns. By banding together with others who pledged mutual support in both good times and bad, kibbutzniks created a form of insurance. Adverse selection, a threat to insurance pools because people who know they're at high risk are more likely to join, wasn't a problem then. Most arrivals were much like Abramitzky's grandparents: not only motivated by ideology, but also too young for anyone to know whether their ability to contribute to the kibbutz was likely to outweigh their needs.

Subsequent generations were a different story. The ideological zeal of people born into a kibbutz was weaker, so practical considerations took over. Kibbutzim saw some attrition, with high-ability individuals more likely to leave. Even so, brain drain would be worse, Abramitzky says, if kibbutzim didn't make it so costly to exit. No ownership of private property means that "you can take your brain with you, but you can't take your house or your share of the kibbutz swimming pool."

This lock-in was one of several ways the kibbutzim reduced the inherent trade-off between equality and incentives. To protect against adverse selection, kibbutzim put prospective members through lengthy trial periods, and because kibbutzniks live and work in close quarters, there's little room for shirking. If you're not pulling your weight, people simply won't sit next to you in the dining hall. "They can make your life sufficiently miserable that you're better off working hard or exiting," Abramitzky says. In fact, his data show that kibbutz members work longer hours than the rest of the population.

After the financial crisis of the 1980s, however, when kibbutzim found themselves in deep debt, the original model faltered. Kibbutz Negba, for example, went through a 15-year period without a single new member. To cope, many kibbutzim eventually moved away from full equal sharing to something closer to capitalism and taxation. Under the most prevalent model today, members' salaries are based on what similar jobs would pay on the open market—managers earn more than laborers, for example—with a chunk of income above a certain level going into the common pool. "It's more equal than the city, but less equal than it used to be," Abramitzky explains. As a result of similar reforms, Kibbutz Negba nearly doubled its membership.

Interestingly, Abramitzky found that the poorer a kibbutz, the more likely it was to shift from full equal sharing: Wealthier kibbutzim could preserve full equality because their average wage was high enough to retain members. Abramitzky also discovered that when income began to reflect individual skill, students on the kibbutzim started to take school more seriously, investing in themselves as economic theory would predict under these conditions.

Abramitzky's findings don't offer a prescription for the best immigration policy or even the optimal revenue-sharing plan for a small law firm. Yet they clearly show that equality doesn't come for free. What you gain in a safety net, you lose in individual incentives; but if you raise incentives, inequality follows. Under equal sharing, mutual monitoring and peer pressure do bolster incentives, but these strategies aren't costless, either: Not everyone wants to live with a lack of privacy, for example. Still, Abramitzky notes, "It is not impossible to live in a high degree of equality even today, as evidenced by the kibbutzim experience."

Marina Krakovsky, '92, is the co-author of Secrets of the Moneylab: How Behavioral Economics Can Improve Your Business. (Portfolio/Penguin)