fatvegan

I wonder if anyone has considered setting up derivatives markets for famine. You could have a futures product (or many) linked to some aspect of the calorie intake for a particular country or area. It could be the mean (although probably not) calorie intake, although including the variance would be better. It could be the proportion of the country consuming less than some figure or just the fifth percentile of the distribution.

You probably wouldn't have starving people going into the stock exchange buying futures in their own calorie intake variation, but insurance companies could use the markets to fund some sort of insurance product. If the price of the insurance wasn't extremely cheap, that would be a sign that the government or the UNDP or whatever needed to grow some food quick smart.

Of course, an insurance company could just offer insurance the conventional way but given that famines tend to affect large numbers of people at once it might not work that well.

Using a futures market might make it easier to reduce moral hazard and adverse selection problems. If one person in a village was starving and made an insurance claim while everyone else was doing fine, the person making the claim would have to show how they were affected by something that no one else was.

Collecting data on calorie intake would be tricky, because there'd be money at stake based on the measurements. People might bribe doctors or whoever to change the data. But if it was collected by some UN agency (which I guess they already do), then it would probably be OK.

There's also the problem that people in positions of power (bureaucrats etc.) might be able to profit by causing famines. But selfishness probably already causes quite a few famines, so perhaps having one more avenue wouldn't be such significant thing. There are already plenty of examples of functional derivatives markets where people could do deliberate damage to governments or companies in order to make money. Perhaps that is even implicit to derivatives markets. As soon as people were able to profit from things going wrong in the world - which is largely what makes derivatives special - there was a greater incentive for sabotage. I'm not sure if famines are sufficiently different that this would be a real problem where it hasn't been to date.

Probably a lot of people will think this idea is pretty sick...

...which I've just realised adds another interesting aspect. There's the potential for the sickness factor to "distort" the market. If speculators are irrationally biased against selling short famine futures they'll prefer to bet on food intake going up. Meaning, if they don't want to make a whole lot of money out of people starving to death then the market will be biased in favour of the starving, who are effectively selling short their own nutrition levels. Which is a slightly strange concept.