Abstract

http://ssrn.com/abstract=2139185
 


 



Can Markets Discipline Government Agencies? Evidence from the Weather Derivatives Market


Amiyatosh K. Purnanandam


The Stephen M. Ross School of Business at the University of Michigan

Daniel Weagley


University of Michigan - Stephen M. Ross School of Business

May 22, 2013


Abstract:     
The Chicago Mercantile Exchange has introduced several temperature related derivative contracts on diff erent U.S. cities in a staggered fashion since 1999. The payo ffs of these contracts depend on the temperature levels at a specifi c weather station in the underlying city. We show that the introduction of these contracts improves the accuracy of temperature measurement by the dedicated weather station of the National Weather Services (NWS) in that city. We argue that temperature-based fi nancial markets generate additional scrutiny of the temperature data measured by the NWS, which in turn motivates the agency to minimize measurement errors. Consistent with this idea, stations with higher economic interests in weather derivatives see greater improvement in measurement accuracy. Our results indicate that the visibility and scrutiny generated by fi nancial markets can improve the efficiency of government agencies even in the absence of explicit incentive contracts.

Number of Pages in PDF File: 51

working papers series


Download This Paper

Date posted: August 31, 2012 ; Last revised: June 10, 2013

Suggested Citation

Purnanandam, Amiyatosh K. and Weagley, Daniel, Can Markets Discipline Government Agencies? Evidence from the Weather Derivatives Market (May 22, 2013). Available at SSRN: http://ssrn.com/abstract=2139185 or http://dx.doi.org/10.2139/ssrn.2139185

Contact Information

Amiyatosh K. Purnanandam (Contact Author)
The Stephen M. Ross School of Business at the University of Michigan ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
Daniel Weagley
University of Michigan - Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI 48109-1234
United States
734-363-8544 (Phone)
HOME PAGE: http://http://www-personal.umich.edu/~weagley
Feedback to SSRN


Paper statistics
Abstract Views: 1,120
Downloads: 130
Download Rank: 124,448

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 1.469 seconds