Real Arrow Securities for All: Just and Efficient Insurance Through Global Macro-Hedging

Robert C. Hockett

Cornell University - Law School

May 12, 2014

As the new hurricane season opened in June of 2006, it emerged that a number of online gaming sites were offering bettors the opportunity to wager on whether New Orleans might suffer another Katrina calamity. Commentators condemned the announced practice with howls of disgust, labeling it both tasteless and heartless. Perhaps they were right. All I could think about as one raised in New Orleans, however, was how risk pools might now be broadened to include all the world’s bettors. We shouldn’t condemn these people, I thought, we should use them – and require they maintain margin accounts at their betting sites. For to bet on an event’s happening is to insure against it, and there are more things we’re able to bet on than to purchase ordinary insurance policies against.

This essay elaborates and draws consequences from that observation. In a manner I hope is more concretely appreciable and intuitively graspable than in more technical work I did long ago, I work to show that we have it within our power to spread risks both more justly and more efficiently than we do now – in effect by designing new hedging instruments suitable for “ordinary Janes and Joes.” In this sense the essay amounts to a contribution to the project of “democratizing” finance. Working along such lines now seems particularly worthwhile, as more and more people below the tops of our income and wealth distributions face more and more uninsurable risks – both to labor incomes and to that one form of wealth which they hold when they hold anything more than mere “human capital” – their homes.

Number of Pages in PDF File: 34

Keywords: Arrow-Securities, Complete Markets, Contingent Claims, "Democratized" Finance, Distributive Justice, Efficiency, Finance, Hedging, Incomplete Markets, Inequality, Insurance, Macro-Hedging, Macrosecurities, Missing Markets, Risk, Risk-Bearing, Risk Markets, State-Claims, State-Contingent Claims

working papers series

Download This Paper

Date posted: May 13, 2014  

Suggested Citation

Hockett, Robert C., Real Arrow Securities for All: Just and Efficient Insurance Through Global Macro-Hedging (May 12, 2014). Available at SSRN: http://ssrn.com/abstract=2435781 or http://dx.doi.org/10.2139/ssrn.2435781

Contact Information

Robert C. Hockett (Contact Author)
Cornell University - Law School ( email )
524 College Ave
Myron Taylor Hall
Ithaca, NY 14853
United States
Feedback to SSRN

Paper statistics
Abstract Views: 254
Downloads: 20

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.328 seconds