Among the paper's highlights:
- The latest (and I daresay most complete) analysis of the legality of prediction markets under U.S. law;
- A couple of tables that very helpfully illustrate the differences between prediction markets and the sorts of markets more properly regulated by commodity futures, securities, or gambling statutes;
- Discovery of a new and very useful legal loophole for "hybrid instruments primarily securities"; and
- The suggestion that the claims traded on prediction markets qualify as "negotiable conditional instruments," a legal animal impossible under Art. 3 but not unknown under common law.
Also, though I'm not sure it qualifies as a "highlight," the paper's conclusion might just might qualifymy craziest academic writing to-date. But, then again, law professors are well known to write some of the most stultifying prose on the planet, so the baseline for "craziest" isn't very high.
The Prediction Exchange: Progress in Promoting the Sciences and Useful Arts
Copyrights and patents promote only superficial progress in the sciences and useful arts. Copyright law primarily encourages entertaining works, whereas patent law mainly inspires marginal improvements in mature technologies. Neither form of intellectual property does much to encourage basic research and development. Essential progress suffers.
The prediction exchange offers another way to promote the sciences and useful arts. It would provide a forum for exchanging claims about unresolved questions of fact. Specifically, the prediction exchange would support transactions in a variety of prediction certificates, each one of which promises to pay its bearer in the event that an associated claim about science, technology, or public policy comes true. Like other, similar markets in information, the prediction exchange would aggregate, measure, and share the opinions of people paid to find the truth.
Because it would reward accurate answers to factual questions, a prediction exchange would encourage essential discoveries about the sciences and useful arts. Researchers and developers in those fields could count on the prediction exchange to turn their insights into profit. In contrast to copyrights or patents, therefore, a prediction exchange would target fundamental progress. Furthermore, and in contrast to copyrights and patents, the exchange would not impose deadweight social costs by legally restricting access to public goods. To the contrary, the prediction exchange would generate a significant positive externality: Claim prices that quantify the current consensus about vital controversies.
This article measures copyright and patent law against the Constitution's call for promotion of "the Progress of science and useful Arts," to find those traditional forms of intellectual property lacking. As a cure for that policy failure, it suggests the prediction exchange. Given that prediction exchanges offer large net public and private benefits, why don't they already thrive in the United States? Because the laws it applies to commodity futures, securities, and gambling markets cast a pall of uncertainty over prediction exchanges. To ease that unwarranted burden, the article explores a variety of strategies designed to guarantee the legality of prediction exchanges. The article concludes by putting theory into practice, backing up its claims about prediction exchanges with cold, hard cash.