From: Robin Hanson (rhanson@gmu.edu)
Date: Sat Jan 20 2001 - 08:21:12 MST
hibbert@netcom.com wrote:
> Robin is worried that speculators will ruin the market for these social
> policy incentive bonds by buying too many of them.
> I can't see how this is a long term problem. Ticket scalpers may buy more
> tickets than they can sell. They take the loss. If speculators buy too
> many bonds and prevent the do-gooders from getting enough to make doing
> good worthwhile, the speculators will lose out and learn not to speculate
> on social policy bonds they don't intend to take action on. If the
> do-gooders wait a while, the speculators will realize their misfortune
> (because the market will fall since no one is performing good works) and
> sell. The do-gooders can now buy at reduced prices.
I don't think you understand my concern yet. If the initial set of bonds is
auctioned in a standard way, such as the way they do T-bills now, then the
price will be equal to speculators' estimate of the expected final value of
the bonds, averaging over the various possible outcomes. Thus the only
way do-gooder buyers can make a net profit is by tending to buy more bonds
in this initial auction when their private info says they expect to do good,
and fewer bonds when their private info says otherwise. Thus there must,
from the speculator's view, be a large probability that they won't do good,
and the auction process can't too easily reveal to speculators how much
do-gooders are buying.
For less than a thousand dollars we could easily prove this one way or the
other with lab experiments.
Also, a package auction might be advised for the initial auction, to
prevent do-gooders from revealing too much info in the auction process.
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