Abstract

http://ssrn.com/abstract=2139185
 


 



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


Amiyatosh K. Purnanandam


University of Michigan, Stephen M. Ross School of Business

Daniel Weagley


Georgia Institute of Technology - Scheller College of Business

July 22, 2014

Journal of Finance, Forthcoming

Abstract:     
We analyze the role of financial markets in shaping the incentives of government agencies using a unique empirical setting: the weather derivatives market. We show that the introduction of weather derivative contracts on the Chicago Mercantile Exchange improves the accuracy of temperature measurement by 13-20% at the underlying weather stations. We argue that temperature-based financial markets generate additional scrutiny of the temperature data measured by the National Weather Service, which motivates the agency to minimize measurement errors. Our results have broader implications: the visibility and scrutiny generated by financial markets can potentially improve the efficiency of government agencies.

Number of Pages in PDF File: 46

JEL Classification: G30, H00


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Date posted: August 31, 2012 ; Last revised: June 3, 2015

Suggested Citation

Purnanandam, Amiyatosh K. and Weagley, Daniel, Can Markets Discipline Government Agencies? Evidence from the Weather Derivatives Market (July 22, 2014). Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2139185 or http://dx.doi.org/10.2139/ssrn.2139185

Contact Information

Amiyatosh K. Purnanandam (Contact Author)
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
Daniel Weagley
Georgia Institute of Technology - Scheller College of Business ( email )
800 West Peachtree St.
Atlanta, GA 30308
United States
(404) 385-3015 (Phone)
HOME PAGE: http://www.danielweagley.com
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