A New Approach for Regulating Information Markets

Information markets are markets for contracts that yield payments based on the outcome of an uncertain future event, such as a presidential election. They have the potential to improve decision making and policies throughout the economy. The demand for information markets appears to be increasing. At the same time, there are regulatory hurdles to establishing such markets, largely arising from state prohibitions on Internet gambling. This paper reviews the current regulatory structure for information markets in the United States and offers recommendations for reform. We make two points: First, the authority for regulating many information markets should be shifted from the states to the federal government. Second, the federal government should implement a clear policy that would allow a large number of information market contracts. We argue that that the Commodities Futures Trading Commission should regulate certain kinds of information market contracts that are futures contracts. Particular contracts should satisfy an "economic purpose test" administered by the CFTC. That test should consider whether an information market contract would allow for significant financial hedging or improve economic decisions. In addition, some types of information markets, such as over-the-counter markets, should remain exempt from CFTC regulation altogether.We believe that the effect of our proposal would be to enhance the development of information markets that improve economic decision making.

The Economics of Regulating Cellular Phones in Vehicles

Regulation of the use of cellular phones by individuals while driving is now commonplace outside the United States and has been proposed in a number of jurisdictions in the United States. There is growing concern that using cellular phones while driving leads to increases in accidents and fatalities. This paper provides an economic analysis of regulatory options for addressing cellular phone usage by drivers of vehicles. While large uncertainties surrounding both benefits and costs exist, a key conclusion is that banning drivers from using cellular phones is a bad idea. Our best estimate is that the costs of a ban are likely to exceed benefits by more than $20 billion annually. Less intrusive regulation, such as requiring the use of a hands-free device that would allow a driver to use both hands for steering also is not likely to be economically justified. We are doubtful that the net benefits from a ban on drivers using hand-held phones or a mandate requiring the use of hands-free devices would be positive for three reasons. First, the results of our quantitative benefit-cost analysis suggest that costs are likely to exceed benefits. Second, our best estimates of accidents and fatality reductions do not take into account how drivers would alter their behavior in response to regulation. If regulations were enforced, drivers may simply switch to other risky behaviors. Thus, the net reductions in accidents and fatalities are likely to be overstated, which means the benefits of regulatory interventions could be quite small. Third, the technology is already moving in the direction of voice activation, which is likely to reduce risks. Instead of regulating now, the federal government and the states should collect more systematic information on the relationship between cellular phone use by individuals while driving and accidents. Specifically, governments should attempt to improve estimates of the number of accidents and fatalities associated with cellular phone use. It is possible that accidents are underestimated now. Moreover, an argument can be made that accidents will increase more than linearly as more drivers use cellular phones in vehicles. The federal government should also assess the benefits and costs of introducing promising new technologies that could reduce the risks of accidents associated with drivers' using cellular phones in vehicles.

Using Information Markets to Improve Public Decision Making

Information markets are markets for contracts that yield payments based on the outcome of an uncertain future event, such as a presidential election. The prices in these markets provide useful information about a particular issue, such as a president's reelection probability. The purpose of this paper is to suggest how the use of information markets can improve the quality of public policy. Our central contribution is to propose an efficient way to implement well-informed policy decisions. We do this by linking and building upon the literatures on information markets and mechanism design. Our claim is that the prices in information markets can inform the mechanism design process, thereby making previously infeasible mechanisms feasible for the policy maker. Specifically, information markets make pay-for-performance contracts viable in the policy domain. Although we focus on public sector decision making, the analysis is sufficiently general to apply to a wide range of problems in private sector and not-for-profit decision making. The framework can be applied to any situation in which a decision maker has the resources, but not the necessary information and ability, to achieve his specified objective. First, we show how it is generally possible to design contracts based on different contingencies whose prices will convey useful information on the costs and benefits of a number of policy choices, ranging from regulation to public works projects. Second, we describe one way of providing incentives for self-interested agents to implement policies that maximize net social benefits. Third, we show how information markets can be used to provide a stronger foundation for implementing a variety of government oversight mechanisms, such as a regulatory budget. We also show how legislators can use traditional budgetary controls in conjunction with information markets to exercise more effective oversight. Finally, we identify and analyze the strengths and limitations of using information markets to help improve policy. To make the analysis concrete, we examine how the "Copenhagen Consensus" which makes recommendations on spending $50 billion wisely, could have benefited from applying information markets. We argue that there is a large scope for expanding the use of information markets. These markets could promote greater transparency in governmental decision making, provide more accurate estimates of the efficiency and distributional impacts of different policies, provide a better understanding of uncertainties, help with sensitivity analysis, offer a low-cost way of assessing new policy proposals, finance government projects and regulations with positive net benefits, allow those affected by specific policies the opportunity to hedge risk, and aid in the design of policies. Furthermore, information markets can help assess the value of additional research on the decision to undertake a project. At the same time, we suggest that there are important limits to the application of information markets. We also suggest how government could play an important role in the expansion of information markets and researchers could help in the development and assessment of these markets.

Designing Information Markets for Decision Making

People often make important decisions based on information elicited from experts with uncertain preferences. We provide a theoretical rationale for the use of information markets in decision making tasks. Specifically, we show that markets for claims on decision-relevant variables can be efficient incentive schemes for eliciting information. Our model shows decision makers will subsidize liquidity in illiquid decision markets to gather valuable information. Our model also shows that the mere act of linking the decision to the market price will typically enhance liquidity in the market. Overall, our results highlight the potential for using information markets in diverse decision making tasks.

Oxford, U.S.A.

Letter to the editor about the documentary Oxford U.S.A., claiming that it presents a distorted and biased view of events surrounding the integration of the University of Mississippi; Source: unknownhttps://egrove.olemiss.edu/jws_clip/1118/thumbnail.jp

Should You Be Allowed to Use Your Cellular Phone While Driving?

Regulation of the use of cellular phones by individuals while driving is now commonplace outside the United States and has been proposed in a number of jurisdictions in the United States. There is growing concern that using cellular phones while driving leads to increases in accidents and fatalities. This paper provides an economic analysis of regulatory options for addressing cellular phone usage by drivers of vehicles. While large uncertainties surrounding both benefits and costs exist, a key conclusion is that banning drivers from using cellular phones is a bad idea. Our best estimate is that the costs of a ban are likely to exceed benefits by about $20 billion annually. Less intrusive regulation, such as requiring the use of a hands-free device that would allow a driver to use both hands for steering also is not likely to be economically justified.