The London School of Economics chose InTrade-TradeSports over BetFair-TradeFair for floating event derivatives on global warming.

Chris F. Masse December 9th, 2007

The London School of Economics’ Centre for Economic Performance (CEP), located at the center of London (nearby the Waterloo Bridge), chose not to partner with BetFair-TradeFair, the world’s #1 prediction exchange (betting exchange), located west of London (near the Hammersmith Bridge). Instead, the CEP went with Ireland-based InTrade —North America’s illegal market leader, and the best actor of what I call the “prediction market approach” (as opposed to BetFair’s “betting exchange approach”). This sadly shows, once again, that BetFair-TradeFair is a laggard in the field of prediction markets. (I hope that this will change in the future, since David Jack seems to want to belong to the field.)

Yesterday evening, Saturday, I blogged about InTrade’s global warming prediction markets, just opened. Today, Sunday afternoon, I have just found out, thanks to a tip from Ralf Martin, that the InTrade global warming prediction markets were actually set up in collaboration with the London School of Economics’ Centre for Economic Perfomance.

What will happen to global efforts to limit greenhouse gas emissions when the current commitment period of the Kyoto protocol ends in 2012? There are hopes that the United Nations (UN) climate change conference that started on 3 December in Bali will outline a road map for a successor agreement that might be reached in late 2009.

To know what is going to happen in 2012 and beyond is not only relevant for future generations but for a wide range of investment decisions today:

Should you buy that flat in a riverside building?

Should companies invest in R&D on carbon capture and storage technologies?

Should governments provide more money to wind farm development or rather improve flood defences and relocate people living close to the coast?

Should an energy intensive company relocate its production from an industrialised country to a developing country unlikely to be covered by a pollution target?

To make these choices wisely, we need forecasts on the likely outcome and design of any post-Kyoto agreement. There is no shortage of opinions on what is going to happen. But whom should you trust? Opinions will be influenced by wishful thinking and strategic positioning alike as well as being based on different insights into parts of the puzzle. For example, living in the rich world, you might have a good sense of what the typical voter in your country thinks about pollution targets, but what about Indian voters or the Chinese communist party?

If the UNFCC [*] – the UN body in charge of the climate change negotiations – was a publicly listed company whose profits depended on the climate change reduction targets it achieves, a good way of getting an idea on what’s going to happen is to have a look at its share price rather than public statements of its bosses or shareholders. This is obviously not a possibility. But what is possible now might be even better. [...]

[*] There are 3 “C”s actually. For Christ’s sake, be careful. –> UNFCCC (United Nations Framework Convention on Climate Change). Look at the logo, below.