rhanson@gmu.edu said:
> 1) The bondholder needs to have private information about their
> chances of success. If speculators know as much as the bondholder
> does about the chances of success, the bond price would get bid up
> to a value consistent with those chances, and the bondholder
> couldn't make any profits by actually pursuing success.
If some people buy because they can do something about reaching the
goal, their "private information" is that they will take action if
they get enough of the bonds. The speculators can't buy until they
are sure that people who can do something have bought enough to make
it worth their while to proceed. If the speculators beat the action
takers to the market, they'll be preventing the bonds they buy from
appreciating in value.
> 2) For every buyer there is a seller. While a buyer has an
> incentive to help the social policy, the seller has an incentive to
> hurt that policy.
There are holders, non-holders, future holders, and past holders.
Holders care about success, the others don't. (Unless I'm missing
something; does the appreciated value come out of taxes that haven't
been collected yet? As long as the non-holders on average agree with
sentiment that lead to the issuance of the bond, they're harmed
financially by the success, but gain by the attainment of the goal by
more than that.) While a holder is in the process of selling, her
incentive is to make the price higher. After she's sold, she doesn't
care anymore. Someone who doesn't hold and is thinking of buying
wants the price to be low. After he buys, he wants the price to be
high.
Chris
---
Chris Hibbert It is easy to turn an aquarium into fish soup, but
hibbert@netcom.com not so easy to turn fish soup back into an aquarium.
-- Lech Walesa on reverting to a market economy.
This archive was generated by hypermail 2b30 : Mon May 28 2001 - 09:56:20 MDT