Loading...
 

market-based method

A market-based method is one that matches bid and ask offers, and perhaps more sophisticated methods such as put and call options/derivatives, to find prices. These need not be in currency but might be in analogs of it, e.g. a game currency, or e.g. awiki edits, votes and bets "revert currency".

A prediction market for instance works in this manner.

A Pareto-optimal outcome supposedly results from such matching. This is not however to say that comprehensive outcomes are likewise optimal. Market methods have no way way to determine such outcomes unless ecological and social indicators are used directly in fixed pricing ormoney supply systems. In particular for natural capital, Herman Daly notes that there is no equivalent to the Plimsoll line in a market-based method, as, it assumes infinite recovery and liquidity of any market from a stress, no matter how strong it might be.

A market crash can neither be anticipated nor prevented strictly by applications of market based methods, and this is acknowledged even by the methods' most fervent boosters.