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A New Approach for Regulating Information Markets

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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.

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Authors and Affiliations

  1. AEI-Brookings Joint Center for Regulatory studies, 1150 17th Street, N.W., Washington, DC, 20036, USA

    Robert W. Hahn

  2. McCombs School of Business, University of Texas at Austin, 1 University Station - B6600, Austin, TX, 78712, USA

    Paul C. Tetlock

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  1. Robert W. Hahn
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  2. Paul C. Tetlock
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Correspondence to Robert W. Hahn.

Additional information

Mr. Hahn is co-founder and executive director of the American Enterprise Institute-Brookings Joint Center for Regulatory Studies and a resident scholar at AEI. Mr. Tetlock is an assistant professor of finance at the University of Texas at Austin, McCombs School of Business. The authors would like to thank Michael Abramowicz, Tom Bell, Bernard Black, Michael Gorham, Robin Hanson, Robert Litan, David Pennock, Cass Sunstein, Justin Wolfers, Eric Zitzewitz and AEI-Brookings Joint Center information market conference participants for helpful comments, and Katrina Kosec and Rohit Malik for research assistance. This paper represents the views of the authors and does not necessarily represent the views of the institutions with which they are affiliated. ©2005 by Robert W. Hahn and Paul C. Tetlock. All rights reserved

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Hahn, R.W., Tetlock, P.C. A New Approach for Regulating Information Markets. J Regul Econ 29, 265–281 (2006). https://doi.org/10.1007/s11149-006-7399-z

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