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Missing markets: Fostering market-based solutions to major risks

Thursday, June 05, 2008

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.

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.


Welcome and Overview

Jason Furman
Senior Fellow, Economic Studies

Panel Discussion: How Markets Can Create New Opportunities for Individuals

Harvey Blitz
AXA Equitable Life Insurance Company

Andrew Caplin
New York University

Douglas W. Elmendorf
Senior Fellow, Economic Studies

Lina Walker
The Retirement Security Project

Moderator: Jason Furman
Senior Fellow, Economic Studies

Panel Discussion: How Markets Can Help Communities Manage Financial Risk

Nada O. Eissa
Georgetown University

Robert Z. Lawrence
The Kennedy School of Government, Harvard University
The Peterson Institute for International Economics

Kim Rueben
The Urban Institute

Kent Smetters
The Wharton School, The University of Pennsylvania

Moderator: Zanny Minton Beddoes
The Economist