A New Approach for Regulating Information Markets

25 Pages Posted: 18 Oct 2005

See all articles by Robert W. Hahn

Robert W. Hahn

Technology Policy Institute; University of Oxford, Smith School

Paul C. Tetlock

Columbia Business School - Finance


Information markets are markets for contracts that yield payments based on the outcome of an uncertain future event, such as a presidential election. They have the potential to improve decision making and policies throughout the economy.

The demand for information markets appears to be increasing. At the same time, there are regulatory hurdles to establishing such markets, largely arising from state prohibitions on Internet gambling. This paper reviews the current regulatory structure for information markets in the United States and offers recommendations for reform.

We make two points: first, the authority for regulating many information markets should be shifted from the states to the federal government. Second, the federal government should implement a clear policy that would allow a large number of information market contracts.

We argue that the Commodities Futures Trading Commission should regulate certain kinds of information market contracts that are futures contracts. Particular contracts should satisfy an economic purpose test administered by the CFTC. That test should consider whether an information market contract would allow for significant financial hedging or improve economic decisions. In addition, some types of information markets, such as over-the-counter markets, should remain exempt from CFTC regulation altogether. We believe that the effect of our proposal would be to enhance the development of information markets that improve economic decision making.

Suggested Citation

Hahn, Robert W. and Tetlock, Paul C., A New Approach for Regulating Information Markets. Journal of Regulatory Economics, Forthcoming, AEI-Brookings Joint Center Working Paper, Available at SSRN: https://ssrn.com/abstract=821447

Robert W. Hahn (Contact Author)

Technology Policy Institute ( email )

1401 Eye St. NW
Suite 505
Washington, DC 20005
United States

University of Oxford, Smith School ( email )

United Kingdom

Paul C. Tetlock

Columbia Business School - Finance ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www0.gsb.columbia.edu/faculty/ptetlock/

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