Subject: Re: Tom W. Bell paper
From: Don Marti <dmarti@zgp.org>
Date: Fri, 1 Sep 2006 09:15:09 -0700

begin stephen@xemacs.org quotation of Fri, Sep 01, 2006 at 02:56:48PM +0900:

> But this is not really practical, as far as I can see.  What you're
> looking at here is a large collection of individual securities, each
> subject to "events" that could imply swings of hundreds of billions of
> dollars---and the inevitable bankruptcy risk on the side facing the
> adverse change.  Would I buy a share on a market?  Not a chance,
> unless it were ultimately insured by something with assets denumerated
> in the trillions of dollars.  *A mortgage on Microsoft is not big
> enough.*

You're inventing cold fusion in your basement, so
you hold, or control through options, a couple of
hundred thousand dollars worth of "cold fusion will be
invented" contracts.  You chose the market to enter
because you believe in and trust the chosen referees
and protocol for that contract: three physicists and
three stage magicians who have written a set of tests
that the proposed cold fusion apparatus must pass.
(Experts make extra money by acting as referees
for contracts, much as they make extra money now by
testifying as expert witnesses.)

The counterparties to your contracts are, besides
speculators, hundreds of energy customers who have
each invested in the "no" side of several predictions
that they believe would drive down the cost of energy.
(no cold fusion, no hot fusion, no free energy from
the AEther...)

So no one person or entity is on the hook for
trillions of dollars -- it's like big moves in the
oil market that way.  If you're a big R&D operation
or a big technology user, you have a big portfolio
of SPEX investments.

> Another problem you're going to run into is that by definition you're
> looking at insider trading (another form of monopolistic
> exploitation).  If insiders can't trade on their information, how are
> they going to use this market to fund completion of their research?

This morning, a corn farmer in Iowa came in from
inspecting his crop and made a trade on a corn
futures market.  He has information about that corn
that nobody else has, or may ever have.  Meanwhile,
a speculator in London, England, made a trade on the
same market.  "Insider trading" is a peculiarity of
public companies.  Other kinds of markets use "inside"
information all the time.

> I'm not saying that this proposal won't be an improvement over the
> government franchise involved in intellectual property.  But it's not
> a panacea, and I would be willing to bet that in the end making these
> markets work will require large-scale government intervention.  I'm
> very pessimistic that intervention on that scale will be much better
> than what we currently have.

Transaction costs will probably be between the patent
system and the existing futures markets.  They'll have
to be a little higher than regular futures markets
because there will need to be a unique set of referees
and protocol per contract.

-- 
Don Marti                    
http://zgp.org/~dmarti/
dmarti@zgp.org