Just thought of these people (admittedly in the UK):

http://www.instituteforgovernment.org.uk/

I gather they have been working with the Conservatives and their Chairman was a Labour minister, which in the UK would suggest they are about as non-partisan as you could reasonably expect.

I don’t know how big you think these prediction markets will be… my single data point is that a few hundred thousand dollars was enough to boost McCain’s chance of winning the presidency by 10% on Intrade (see link), which makes me think they’d be pretty small.

http://bit.ly/RLtAe

So I’d think of it as lobbying spend, not speculation.

Brings up another interesting question – what would happen if the legislation in question never passed? If contracts were simply canceled, the cost to lobbying companies in that case would only be their cost of capital.

the cost to create prediction markets giving quality unbiased estimates of actual bill budgets would be small.

The cost of setting up a market is not the issue. How would you actually determine liquidating payouts? Prediction markets in sports and elections are easy: Security X pays of $1 if team or candidate X wins, 0 otherwise. It is not much harder with an index like the Dow Jones Industrial Average, where a security can pay off more money the higher the index is.

I don’t see any workable way to do this for the budget estimate of legislation that hasn’t passed yet. If the legislation doesn’t pass, do you simply return everyone’s money?

If the legislation does pass, it is certain to differ from whatever is described at the time people trade. The goal of the CBO is not to predict the cost of ‘whatever bill that might get passed’ but to predict the cost of a bill being considered, so that legislators can decide how to modify it to achieve budgetary goals. That means that you want people trading on estimates of a bill that will never pass (in its exact form), so how are how are you to calculate a liquidating payout?

Even if the legislation passes exactly as specified in the market, how do you calculate the payout? Do you wait 10 years? In that case, market prices are so distorted by risk considerations that it isn’t a great prediction. Whose accounting do you rely on? Accounting for the cost of major legislation is a noisy process at best, and heavily politicized by both non-neutral allocations and subsequent legislative fiat.

If you have written on these issues, I’d love to see a link.

Opinion polls show that most people are pretty skeptical of the rhetoric on both sides.

Here’s an idea: everybody automatically gets a little bit of a tax break, say 1%, just by taking the time to register their opinions on a range of policy issues. But people can also opt to commit some money where their mouth is: they can lose that break or win an even bigger one (say, up to 5%) depending on whether they guess right about policy outcomes.

Would it be gambling? Well, so are state lotteries, which are basically just a tax on statistical stupidity and superstition (and those lotteries effectively levy that tax on those who can least afford it — how regressive can you get?). Why not instead tax general policy stupidity among the electorate, while rewarding general policy wisdom? And why not appeal to those who are most willing to take deferred and indirect winnings, as opposed to those who buy lottery tickets, who presumably want to find out next week whether they won and to cash out immediately if they did?