Organizational Framework
In order for collaboration to be practical in this context, various ways of looking at risk market organization should be considered. There are precedents for collaboration in risk management.
In the area of emission trading, the government assigns emission allowances for atmospheric pollutants produced in the U.S. on a yearly basis. Polluters that reduce their emissions can sell their pollution credits. Companies collaborate toward the most effective solution by buying and selling pollution credits. This is intended to encourage companies to make money by adopting new non-polluting processes. Those that do not will contribute to the cost of finding better alternatives.
In energy trading, power generators and users are never sure exactly how much power they will need in a given time frame, so they arrange for production based on estimates. They may buy or sell power to which they have already committed. This scheme will allow all parties to achieve the lowest marginal cost for power. The implementation of such a scheme is a large potential target of opportunity for the U.S. economy.
A related use is in the area of alternative fuels. If controls are used to create longer-term risk products, which can be fluidly traded, there is the potential for attracting a new large capital hedge market for investing in alternative energy, which is currently a major impediment to its development (Davis, 2008).
These approaches may be characterized by three layers of organization, which would form the basis for the core data model (Figure 1):
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A control layer, in which products are given time or quantity limits. An example is an insurance policy, which is purchased for one year, and is then placed into the risk market.
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A risk market (‘broker mediated layer’), in which prices, purchases, and sales of risk products are maintained, and matches between buyers and sellers are found;
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A collaborative layer, in which groups are free to form and to buy and sell risk products amongst themselves.
Figure 1. Core Layers of Collaboration
This scheme has the benefit of clarifying the underlying data model for the risk control environment. Each layer has clear entities in the form of organizations, roles, objects, and transactions (see Figure 2).
Figure 2. High Level Data Model for Risk Collaboration