Thursday, March 1, 2007

Negative Externalities in the NK deal on Iran

It appears that the agreement with North Korea to disarm their nuclear facilities has been interpreted as an increased probability of U.S./Israel air strikes against Iran, as evidenced by the Intrade Trading Exchange on Current Events. On this website, people buy shares of stock based on the probability that a certain event will occur by a particular date, and if it does then those who hold stock will be paid a dollar per share they hold. Based on the link I provided, it appears that over the last few days as these talks with North Korea have advanced, people have increased the price they are willing to pay for these shares, i.e. they think it is more likely that the U.S. will attack and the shareholders will get paid that dollar. So even though Iran was not involved with the treaty, they appear to bear some cost of that transaction.

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