Betting on Climate Policy: Using Prediction Markets to Address Global Warming
U.C. Davis Law Review, Vol. 52, 2019, pp. 1429-1486
59 Pages Posted: 25 May 2018 Last revised: 9 Feb 2019
Date Written: May 15, 2018
Global warming, sea level rise, and extreme weather events have made climate change a top priority for policymakers across the globe. But which policies are best suited to tackle the enormous challenges presented by our changing climate? This Article proposes that policymakers turn to prediction markets to answer that crucial question. Prediction markets have a strong track record of outperforming other forecasting mechanisms across a wide range of contexts – from predicting election outcomes and economic trends to guessing Oscar winners. In the context of climate change, market participants could, for example, bet on important climate outcomes conditioned on the adoption of particular policies. These prediction markets would aggregate policy-relevant information from a variety of sources to improve upon existing decision-making methods, including expert deliberation, peer review, and cost-benefit analysis. Prediction markets also have the potential to overcome resistance to climate change mitigation efforts, particularly among market-oriented conservatives. We explain how both the federal and state governments could use prediction markets to help resolve high-profile controversies, such as how best to allocate subsidies to promote clean technology innovation and which policy strategy promises the greatest reduction in carbon emissions.
Keywords: climate change, decision making, cost-benefit analysis, prediction markets, heuristics, bias, green subsidies, ARPA-E, feed-in tariffs, renewable portfolio standards, net metering, carbon tax, cap-and-trade
JEL Classification: D40, D62, E60, F01, H30, H51, H60, H70, K23, K32, L10, M13, O10, O32, O38, Q20, Q28, Q40, Q42, Q48
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