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A New Approach for Regulating Information Markets

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  • Robert Hahn
  • Paul Tetlock

Abstract

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. At the same time, there are regulatory hurdles to establish 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 argue that the authority for regulating many information markets should be shifted from the states to the federal government. In addition, the Commodity Futures Trading Commission should administer an “economic purpose test”. That test would only allow information market contracts that are likely to provide significant financial hedging opportunities or valuable information for improving economic decisions. Copyright Springer Science+Business Media, Inc. 2006

Suggested Citation

  • Robert Hahn & Paul Tetlock, 2006. "A New Approach for Regulating Information Markets," Journal of Regulatory Economics, Springer, vol. 29(3), pages 265-281, May.
    • Handle: RePEc:kap:regeco:v:29:y:2006:i:3:p:265-281
    DOI: 10.1007/s11149-006-7399-z
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    References listed on IDEAS

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    7. ,, 2003. "Problems And Solutions," Econometric Theory, Cambridge University Press, vol. 19(1), pages 225-228, February.
    8. Shiller, Robert J & Schneider, Ryan, 1998. "Labor Income Indices Designed for Use in Contracts Promoting Income Risk Management," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 44(2), pages 163-182, June.
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    Cited by:

    1. Melissa S. Kearney, 2005. "The Economic Winners and Losers of Legalized Gambling," NBER Working Papers 11234, National Bureau of Economic Research, Inc.
    2. Joseph T. Mahoney & Anita M. McGahan & Christos N. Pitelis, 2009. "Perspective ---The Interdependence of Private and Public Interests," Organization Science, INFORMS, vol. 20(6), pages 1034-1052, December.

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    More about this item

    Keywords

    Government policy and regulation; Futures pricing; G18; G13;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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