"but instead use a system where multiple servers can share entities in the same instance,"
Not sure what you mean by this.
You could get rid of the borders on the system I describe (if its too complicated) and just get 'shadows' from the entirety of each of the adjacent 'chunks' (the chunks being spread out on multiple servers and THEY do the bookkeeping for the world)
To do behavior AI decisions for NPC objects,
execution of client avatar commands/actions,
and for all the object Bookkeeping (arbitration of effects/command action results)
All of those would need authoritative processing locations (however distributed for entities involved)
and being distributed for scaling, will have to keep others (entities) informed with COPIES of each authoritative decision/outcome(and current states)
it has to be a prearranged 'push' flow because you dont know what has happened elsewhere to know to 'pull' anything
unless you have fully deterministic game mechanics you cant arbitrate equivalently in several locations for every decision/outcome