Koleman Strumpf's Working Papers

Summary of some current projects (Feb 2012)

Click on paper title for full text in PDF format (requires Acrobat Reader or Ghostview)

Discussion of: Copyright and the Profitability of Authorship: Evidence from Payments to Writers in the Romantic Period, by MacGarvie and Moser.

Status: Forthcoming in Economics of Digitization (Shane Greenstein, Avi Goldfarb, and Catherine Tucker, editors), University of Chicago Press. Current version: October 2013

The Long History of Political Betting Markets: An International Perspective (with P. Rhode).

Status: Forthcoming in The Oxford Handbook of Economics and Gambling, Oxford University Press. Current version: March 2012.

Revised version of, Historical Political Futures Markets: An International Perspective (NBER WP #14377).

Political future markets, in which investors bet on election outcomes, are often thought a recent invention. Such markets in fact have a long history in many Western countries. This paper traces the operation of political futures markets back to 16th Century Italy, 18th Century Britain and Ireland, 19th Century Canada, and 20th Century Australia and Singapore. In the United States, election betting was a common part of political campaigns in the pre-1860 period, but became increasingly concentrated in the organized futures markets in New York City over the post-1860 period.

Manipulating Political Stock Markets: A Field Experiment and a Century of Observational Data (with P. Rhode).

Status: draft is circulating (comments welcome!). Current version: June 2008.

Trading document for Iowa Electronic Market field experiment

Political stock markets have a long history in the United States. Organized prediction markets for Presidential elections have operated on Wall Street (1880-1944), the Iowa Electronic Market (1988-present), and the internet (2000-present). Proponents claim such markets efficiently aggregate information and provide forecasts superior to polls. An important counterclaim is that such markets may be subject to manipulation by interested parties. We investigate the impact of actual and alleged speculative attacks- large trades, uninformed by fundamentals, intended to change prices- in political stock markets. First we report the results of a field experiment involving a series of planned, random investments-- accounting for two percent of total market volume-- in the Iowa Electronic Market in 2000. We next examine the historical Wall Street markets where political operatives from the contending parties actively and openly bet on city, state and national races; the record is rife with accusations that parties tried to boost their candidates through investments and wash bets. Finally, we investigate the speculative attacks on TradeSports market in 2004 when a single trader made a series of large investments in an apparent attempt to make one candidate appear stronger. In the cases studied, the speculative attack initially moved prices, but these changes were quickly undone and prices returned close to their previous levels. We find little evidence that political stock markets can be systematically manipulated beyond short time periods. Our results potentially have implications for trader behavior in broader financial markets.

Illegal Sports Bookmakers.

Status: Draft is being revised. Current version: February 2003.

This paper provides an economic analysis of illegal sports bookmaking using detailed records from six bookmakers who operated in the 1990s. These operations are structured like standard firms and utilize incentive contracts to induce appropriate employee behavior. The bookmakers offer prices which closely follow the geographically separated legal market, but larger operations price discriminate based on individual betting patterns. Despite the availability of inexpensive hedging instruments, all operations take on substantial financial risk. This implies the bookmakers cannot be risk-averse and must hold large cash reserves. The risk-adjusted profit rate is lower than in legal financial markets. These results and behaviors are consistent with standard models of economic self-interest.