Missing Markets: Fostering Market Based Solutions to Major Risks

Markets that could potentially mitigate or reduce some of the biggest risks faced by the American people and their broader communities are nonexistent or underutilized. These “missing markets” can face three different types of obstacles: government regulations that inadvertently hamper market access; the absence of government regulations to prevent market failure; or in some cases behavioral challenges that discourage market participation. In all of these cases sound public policy can play a critical role in helping to foster new markets or expand existing markets in ways that could provide widely shared benefits.

On Thursday, June 5, The Hamilton Project at Brookings released papers and hosted a discussion focusing on what the government can do to foster market-based solutions to major risks, including the financial risk of buying a home; the possibility of outliving one’s assets and spending the last years in poverty; the vulnerability of local communities to economic dislocations, and the broader risk posed by catastrophes like hurricanes and terrorist attacks.

Brookings Senior Fellow and Hamilton Project Director Jason Furman gave opening remarks and moderated the first panel on policies aimed at reducing risks faced by individuals. The discussion featured a proposal by William G. Gale, J. Mark Iwry, David C. John and Lina Walker of the Retirement Security Project to help prevent people from falling into poverty as they age by having more annuitization in 401(k) plans. In addition, Andrew Caplin and Noel Cunningham of New York University, Mitchell Engler of the Cardozo School of Law, and Frederick Pollock of Morgan Stanley previewed a forthcoming proposal to help families avoid some of the financial risk currently associated with purchasing a home by promoting shared equity mortgages.

Zanny Minton Beddoes of The Economist moderated the second panel on ways that markets can help communities manage risk. The discussion featured a proposal by Akash Deep and Robert Z. Lawrence of Harvard University for creating a system of “local tax base insurance” to help state and local governments pool the risk of tax-base erosion. Kent Smetters of the University of Pennsylvania and David Torregrosa of the Congressional Budget Office presented an analysis of options for enhancing the private-sector market for catastrophe insurance. Academic and business experts joined the authors to discuss this wide array of proposals.

Event Materials:

Missing Markets: Why Markets that Can Reduce Risks are Missing and What Can be Done About It »
by Jason Furman

Increasing Annuitization in 401(k) Plans with Automatic Trial Income » 
by William G. Gale, J. Mark Iwry, David C. John and Lina Walker

Stabilizing State and Local Budgets: A Proposal for Tax Base Insurance »
by Akash Deep and Robert Lawrence 

Financing Losses from Catastrophic Risks »
by Kent Smetters and David Torregrosa

The Case for Shared-Equity Mortgages
(Forthcoming, September 2008)
by Andrew Caplin, Noel Cunningham, Mitchell Engler and Frederick Pollock
View Presentation »