Jason Sorens on Scottish independence

From a longer post:

A closer look reveals that different stocks responded differently to the poll news. Two transportation companies, FirstGroup and Stagecoach Group, lost virtually nothing, and Aggreko, which rents temperature control systems, lost absolutely nothing. Financial and energy/power companies were pounded. An engineering company closely linked to the oil industry, the Weir Group, took a more modest 1.0% loss.

How to sum up?

So far capital markets seem to be telling us that the economic costs of independence to Scotland would be significant but not catastrophic, and that they would be virtually nil to the rest of Britain. How much of those costs are due to the policies Scotland would implement after independence, rather than secession as such? It is difficult to know, but the differential returns to particular firms give us a clue. Transportation companies have closer links to the state, so a more statist policy regime might not hurt them. Financial companies might lose because of the lender of last resort issue (Scotland might not have a credible one). Energy and engineering companies might lose because nationalists want to tax oil heavily to fund social programs. Also, stricter environmental laws may hurt the electric utility SSE, which lost heavily on Monday.

Speculatively, then, capital markets seem to be telling us that the costs of secession as such are modest, but that the costs of dramatically different economic policies are substantial.

But I find this earlier bit less optimistic:

What would happen to these firms’ value if independence were dead certain? Expected utility analysis helps us here. They lost $800 million in value on an increase in the probability of independence of 5.5+2.7=8.2%. We can infer that an increase from 20% to 100% would wipe out $800 million*8/.6=$7.8 billion. That’s a fair proportion of their existing value: about 16%.

There is more here, and for the pointer I thank Chaim Katz.


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