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Who is Greener?
There is a new InTrade.com contract, this one on whether oil futures and the Democratic President contract move in the same direction on Election Day. Right now it's running at about 50 percent, which means an Obama victory won't on average bring a higher price of energy. Mark Thoma directs us to this interesting article on the bursting of the Green bubble, most of all among the Democrats.
Posted by Tyler Cowen on September 30, 2008 at 02:23 PM in Political Science | Permalink
Comments
I just got half way through An Inconvenient Truth and had to stop because my 1 year old was clapping. Now, of course, he was clapping because the throngs were cheering Al and he always claps when others clap (I wonder if this is the same reason for many in the throng).
I was disappointed if you can call it that. The first half anyway struck me as more of a "don't you wish Al Gore was elected" stroking than a serious documentary. I might even care about a history of the environmental movement, but I don't care to hear about Al Gore's movement.
Posted by: Andrew at Sep 30, 2008 2:52:48 PM
Um, how do I say this Tyler? NO NO NO NO NO. Please go to this required reading for anyone interested in that contract.
Short summary: back when Peter McCluskey proposed that contract, I pointed out that it won't extract much information. Only a little uncertainty is resolved on election day, and several other factors influence that financial security's price change on that day. Plus, it's possible for people to manipulate financial market prices by *just* enough to influence the contract, like that guy who was the first to get $100 oil.
The upshot is, the correlation of those two variables (Obama's chances and oil futures) on election day is effectively random. It does not reveal any information about Obama's impact on energy prices. After I so reasoned, intrade proved me right, and the contract is trading as if it were a bet on a coin toss. This caught Peter McCluskey by surprise, not me.
As I previously suggested, it would have made MUCH more sense to bet on the correlation of the changes over all of election season, not just election day. In other words, find out if oil gets more expensive whenever Obama's chances of winning go up. But McCluskey didn't take my advice and neither did Robin Hanson, so I got the pleasure of embarassing them both.
Posted by: Person at Sep 30, 2008 2:57:18 PM
Person, "move in the same direction" is a very weak requirement. I assume that the Obama contract won't be at 1.0 the day before the election.
Posted by: Tyler Cowen at Sep 30, 2008 5:31:12 PM
Tyler, why would you expect a "green" candidate to bring a higher cost of oil? As far as I can see, there are two offsetting effects:
1) Drilling
2) Carbon taxes, emissions standards, alternative fuels
The "green" candidate would presumably be against more drilling in the US and for carbon taxes/emissions standards and alternate fuels.
Less drilling means presumably higher prices, while subsidization of alternate fuels and taxes on fossil fuels means presumably lower oil prices (since these are prices of oil ex ante taxes)
Now add in market expectations for the effect of a President on overall economic growth (growth and oil prices positively correlated) and add in the standard crazy levels of uncertainty in forecasting concrete political decisions as well as the background level of noise in the oil futures market and I'm not sure that you can extract much if any meaningful information regarding the market expectation of the "greenness" of a given candidate from this compound contract...
Posted by: Matt at Sep 30, 2008 5:39:39 PM
Long time reader, first comment post. In reading this and other blogs - I have a general question I would be excited to see you address:
When I read what I view as more libertarian or republican economics blogs (this blog and Greg Mankiw's, for example), I generally get tasteful discussion of people who consider alternatives fairly and don't bash the other party, even when disagreeing. On economics blogs by liberals (e.g. Brad DeLong and Paul Krugman), you tend to get a lot of hate and vile spewed towards approximately half the population (anyone who dares vote Republican).
Why the difference in tone across blogs with different viewpoints? Why are liberal bloggers so bitter?
Posted by: Matt at Sep 30, 2008 5:45:50 PM
Matt @5:45pm:
While I agree with your assessment of Brad Delong's and (many of) Paul Krugman's blog posts, these two are hardly enough data points to be representative of liberal economics blogs in general. Consider Mark Thoma's blog and the Environmental Economics blog, to take just two examples.
Further, there are many right-wing economics blogs that spew bile. I hate to say it here at a GMU blog, but I stopped reading Cafe Hayek and EconLog for this very reason (shortly after the "environmentalists must kill dogs" post, in fact).
Posted by: brian at Sep 30, 2008 6:00:58 PM
Tyler_Cowen: It doesn't matter if it's a weak requirement if its fulfillment has 50/50 odds regardless.
I'm not worried that Obama will be trading at 100.0 before election day. The problem, rather, is that the price change on election day due to resolution of the remaining uncertainty will very likely be small relative to the magnitude of the changes due to other factors, including and especially manipulation. Say oil is down a little just before close on election day. I overbid on it and reverse the sign.
Or let's say I'm betting on the contract and I believe Obama will cause higher oil prices. But then, I have to discount for the possibility that some other event will dwarf the change. Then I find that the probability of this is high enough to make the election-day correlation depend on random factors.
Posted by: Person at Sep 30, 2008 6:02:44 PM
You know what? I'll plot the election season correlation myself. Does anyone know where I can get the
daily closing-price history of long-term oil futures for the past year?
Posted by: Person at Sep 30, 2008 6:04:15 PM
This is Matt of 5:39, not the Matt of 5:45:
Person, be careful about what you're proposing. You should make it clear that you want to derive a correlation coefficient from multiple data points (say the movement in the closing prices across each day) not simply the movement across the entire time period (one measurement today and one measurement after election day). The former should do what you want it to, while the latter actually might do the opposite (it depends how price movements of Obama are time-correlated to each other relative to how price movements of oil futures are time-correlated to each other).
Also, could we please stick to a discussion of the topic at hand, not whether/why liberal bloggers are more shrill than conservative bloggers...
Posted by: Matt M at Sep 30, 2008 6:18:01 PM
This is Matt of 5:39, not the Matt of 5:45:
Person, be careful about what you're proposing. You should make it clear that you want to derive a correlation coefficient from multiple data points (say the movement in the closing prices across each day) not simply the movement across the entire time period (one measurement today and one measurement after election day). The former should do what you want it to, while the latter actually might do the opposite (it depends how price movements of Obama are time-correlated to each other relative to how price movements of oil futures are time-correlated to each other).
Also, could we please stick to a discussion of the topic at hand, not whether/why liberal bloggers are more shrill than conservative bloggers...
Posted by: Matt M at Sep 30, 2008 6:20:38 PM
Matt_M: Here's what I said:
As I previously suggested, it would have made MUCH more sense to bet on the correlation of the changes over all of election season, not just election day. In other words, find out if oil gets more expensive whenever Obama's chances of winning go up.Pay particular attention to the bolded parts. That explanation gave sufficient reason to indicate I meant to take multiple such data points.
Posted by: Person at Sep 30, 2008 6:43:22 PM
I must be missing something obvious. I read the WSJ every day, and so far as I can tell the price of oil fluctuates based on (in priority order) the value of the dollar, weather, supply/demand surprises, and outbreaks of violence. I can't remember an electoral outcome ever being a factor. I suppose, remotely, that our presidential election could lead to an unforseen outbreak of war, or an epidemic of peace, but do you really think so? And I'm pretty sure that presidents have zero effect on the other factors.
Posted by: Bob Knaus at Sep 30, 2008 8:21:42 PM
The Climate Security Act is the baby of sometime-Democratic Party Member, McCain-supporter Joe "It's My Own Party" Lieberman and Republican John Warner - hardly the Democrat power structure.
Nordhaus and Schellenberger pretend to suggest novel ideas that haven't already been put forth by green business, environmentalists and others. They trade in shock to gullible right wingers who are ignorant about what is going on in green business and the environment.
Posted by: Samantha at Oct 1, 2008 1:09:20 AM
If I had a very large position in this new contract, I would target the less liquid of the underlying contracts-- probably the oil-- at the very end of the trading day and buy or sell until the direction of the oil contract matched my position in the new contract. It requires a great deal of capital, but it seems like an instant win at closing time if you can sweep the book.
Posted by: mpkomara at Oct 1, 2008 1:48:47 AM
That is, of course, if the underlying contract is the oil contract listed on Intrade. If it's a real oil future, then you're fucked. the link to the contract you provided didn't take me to the right place.
Posted by: mpkomara at Oct 1, 2008 1:58:18 AM
Here's a link to the "new" (available since early January) contract. It uses the December 2011 Nymex crude oil futures. If someone tries to manipulate it, I would expect more volume on the Intrade contract than we've seen so far.
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