Can Markets Discipline Government Agencies? Evidence from the Weather Derivatives Market

• 成果类型: Article
• 署名作者: Purnanandam, Amiyatosh; Weagley, Daniel
• 署名单位: University of Michigan System; University of Michigan; University System of Georgia; Georgia Institute of Technology
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12366
• 发表日期: 2016
• 页码: 303-334
• 关键词: large shareholders; performance; OWNERSHIP; liquidity; PRIVATE

摘要

We analyze the role of financial markets in shaping the incentives of government agencies using a unique empirical setting: the weather derivatives market. We show that the introduction of weather derivative contracts on the Chicago Mercantile Exchange (CME) improves the accuracy of temperature measurement by 13% to 20% at the underlying weather stations. We argue that temperature-based financial markets generate additional scrutiny of the temperature data measured by the National Weather Service, which motivates the agency to minimize measurement errors. Our results have broader implications: the visibility and scrutiny generated by financial markets can potentially improve the efficiency of government agencies.