Document Type


Publication Date

Spring 2015


Arrow-securities, Macro-hedging, Macrosecurities, State-contingent claims, Risk markets


Finance | Insurance Law | Law and Economics


As a new hurricane season opened in June of 2006, it emerged that a number of online gaming sites were offering bettors the opportunity to wager on whether New Orleans might suffer another Katrina calamity. Commentators condemned the announced practice with howls of disgust, labeling it both tasteless and heartless. Perhaps they were right. All I could think about as one who grew up in New Orleans, however, was how risk pools might hereby be broadened to include all the world’s bettors. We shouldn’t condemn these people; we should use them—while requiring that they maintain margin accounts at their betting sites. For to bet on an event’s happening is a way to insure against it, and there are currently more things we’re able to bet on than to purchase ordinary insurance policies against.

This essay elaborates and draws consequences from that observation. In a manner I hope is more concretely appreciable and intuitively graspable than in more technical work I did some years back, I work to show that we have it within our power to spread risks both more justly and more efficiently than we do now—in effect by designing new hedging instruments suitable for “ordinary Janes and Joes.” In this sense the essay amounts to a contribution to the project of “democratizing” finance. Working along such lines now seems particularly worthwhile, as more and more people below the tops of our income and wealth distributions face more and more uninsurable risks—both to labor incomes and to that one form of wealth which they hold when they hold anything more than mere “human capital”—their homes.