Re: Social Policy Bonds -- Attn: Robin Hanson

Date: Fri Jan 19 2001 - 19:15:40 MST

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.

Why will the price stay high if the ownership by the wrong people is
preventing the good works from being in anyone's interest?

Robin also suggests that short sellers may be a problem. In this case, I
would want to know whether the short sellers can take manifest actions that
prevent the goal from being reached, or whether they have to be
surreptitious. It may be necessary to stay away from issues where short
sellers would have enough leverage to earn a profit.

Robin actually started this section out by saying "for every buyer there is
a seller." It would actually be the case that the first seller prefers to
pay out the bond and reach the goal rather than not issue the bond. So the
first pair both prefer success. There after, every seller (includig short
sellers) is matched with a buyer. The short seller may have an interest in
the failure of the project, but if the prospective buyer believes that the
seller can prevent success, he'd be silly to create someone with that

I think the machinations that allow short selling are that some holders
lend out their shares to people who want to sell them with the intention of
buying them back later at lower price. If holders (who have a continuing
interest in the pursuit of the social goal) can refuse to lend and thereby
prevent short sellers from having the reverse incentive, then the problem
doesn't seem to arise. I'm not sure my description of the mechanics of the
market are correct, though.


Chris Hibbert         It is easy to turn an aquarium into fish soup, but    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 - 09:56:21 MDT