What public interests are served by event contracts?
Michael Giberson June 11th, 2008
Comments continue to trickle in at the U.S. CFTC, in response to the agencies request for comments on its “concept paper on event contracts.” You can find the comments posted so far, all seven of them, on the CFTC’s website. Likely many more comments will be filed around the July 7 deadline, and show up online a few days later.
One of the questions that the CFTC asks is, “What public interests are served by event contracts?” In the most recent comment posted by the CFTC, economist John Blank addresses that question as follows:
Information aggregation is a costly exercise for private individuals, small businesses, large businesses, government entities, and policy makers operating without the benefit of public, transparent information. Critical information is provided by market transactions that are disseminated. So, matching trades for the purpose of information aggregation in event markets, when it is done in the public market context, is far more preferable than having this information available only to those who can pay for it; or who undertake a large enough, and constant enough, and varied enough, number of the relevant commercial transactions themselves.
Large companies with numerous, varied, high-stakes commercial transactions — that is to say, companies that should have a pretty good idea of the market value of the commodities that they deal with — nonetheless find it useful to spend a lot of money on industry price reports. They want to know not only what they pay and are paid, they want to know what other people are paying for the kinds of stuff they buy and sell. When commodities are traded on exchanges offering public price data, the cost of getting that data goes way down for everyone. The result is that companies large and small can use resources more efficiently, i.e., produce more things that people want in the least expensive manner.
As Blank notes elsewhere in his short comment, we have moved from an economy based predominantly on raw materials and produced goods to an economy based on information and services. Event contracts can aid in the discovery and evaluation of information about information, and in today’s economy that kind of information can be a most valuable commodity.
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- Comments(5)
Very interesting post.
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A detail.
“Event contracts” or “event markets” are stupid terms.
“Event derivative contracts” or “event derivative markets” are better, don’t you think?
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Just because the CFTC says something stupid doesn’t mean people should repeat that like parrots.
[...] Just because 2 or 3 bureaucrats at the CFTC have decided to use that term does not mean that that term makes sense. It does not. “Event derivative markets” or “prediction markets” are better terms. It’s with great displeasure that I saw own Mike Giberson (supposedly, a libertarian, and supposedly, a wannabe academic) followed the step …. [...]
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