Macro Markets: Creating Institutions for Managing Society's Largest Economic Risks

Description

Arguing that we have largely inadequate financial markets, dealing with relatively small risks, Robert Shiller makes a unique set of proposals for marketizing the biggest economic risks faced by society today, risks that really matter to most people. The new markets could diminish the impact of international economic fluctuations and reduce the inequality of wealth. He proposes new international markets for claims on national incomes, on components and aggregates of national incomes, and for property such as real estate, and argues that these markets might dwarf our stock markets in their activity and significance. He challenges the widespread presumption that any such new market would be infeasible, by offering solutions to technical problems of measurement and settlement. There are proposals for implementing markets in perpetual claims and a substantial section on the construction of index numbers for use in settlement in the new markets. Cover Cover Preface Acknowledgements Contents 1 Introduction The ideal: A world market for major income risks Hedging income risk in today's markets Markets as inventions Markets as accidents of history 2 Psychological Barriers Research on psychology and risk perceptions Lack of information and ambiguity Demand for insurance by firms Social-psychological factors Gambling behavior Speculative behavior Promoting proper public use of macro markets Psychological barriers: summing up 3 Mechanisms for Hedging Long Streams of Income Settlement based on cash-market asset price Settlement based on measures of income rather than price Exhcnage-guaranteed securities markets for perpetual claims on indices Perpetual futures Rational speculative bubbles Appendix to Chapter 3: Futures markets 4 national Income and Labor Income Markets Market structure and associated institutions Problems enforcing payments of losses Other users of aggregate income markets Markets in actual or full-employment income? Measurement issues Measuring certainty about present values of incomes Results with individual countries World market return and betas Cross hedging Interpretation of results Appendix to Chapter 4: Econometric methods 5 Real Estate and Other Markets Real estate Markets in residual real estate and urban land Commercial real estate Land containing natural resources Unincorporated business and privately held corporations Consumer and producer price-index futures Aggregate price-level risk Components of consumer or producer price indices Agriculture The use of agricultural futures by farmers Intermediaries Difficulties measuring the cost of hedging Inadequacy of short-term hedging to manage farmers' risk well Creating long-term hedging markets in agriculture Art and collectibles Systematic approaches to finding other markets 6 The Construction of Index Numbers for Contract Settlement Analogies to other indices used to settle contracts Extending chain indices to infrequently traded assets Basics of hedonic indices Problems in measuring quality Repeated measures and hedonics Simplifying regression forms Ordinary repeated-measures indices Hedonic repeat-measures index Arithmetic repeated-measures indices 7 Index Numbers: Issues and Alternatives Expected incidence of repeated measures: standard errors Binomial model Equal-representation model Restrictions on coefficients of subject dummies and hedonic variables Choice of hedonic variables Hedonic variables related to improvements Hedonic variables related to depreciation Market conditions as hedonic variables Other models Factor-analytic models: interaction effects Selection bias corrections Interpretation 8 The Problem of Index Revisions Variance components in regression-per-period hedonics Interval-linked indices Indices that are derived by conditioning on lagged index values Interpretation 9 Making It Happen Coming to grips with doubts Providing public goods Developing index numbers Providing information and incentives Dealing with loci of control The importance of opinion leaders Notes References Author Index Subject Index