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

Robert C. Hockett

Cornell University - Law School

May 12, 2014

Review of Banking and Financial Law, Vol. 34, 2015

As a 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 who grew up in New Orleans, however, was how risk pools might hereby be broadened to include all the world’s bettors. We shouldn’t condemn these people, we should use them – while requiring that they maintain margin accounts at their betting sites. For to bet on an event’s happening is a way to insure against it, and there are currently 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 some years back, 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” – namely, their homes.

Number of Pages in PDF File: 35

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

Open PDF in Browser Download This Paper

Date posted: May 13, 2014 ; Last revised: January 23, 2015

Suggested Citation

Hockett, Robert C., Real Arrow Securities for All: Just and Efficient Insurance Through Macro-Hedging (May 12, 2014). Review of Banking and Financial Law, Vol. 34, 2015. 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 )
Myron Taylor Hall
Cornell University
Ithaca, NY 14853-4901
United States
Feedback to SSRN

Paper statistics
Abstract Views: 646
Downloads: 28
People who downloaded this paper also downloaded:
1. Model Risk of Risk Models
By Jon Danielsson, Kevin James, ...

© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollobot1 in 0.188 seconds