Comments on: How Regulation Helps The Regulated http://www.concurringopinions.com/archives/2007/03/how_regulation.html The Law, the Universe, and Everything Tue, 14 Feb 2012 05:18:12 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: David http://www.concurringopinions.com/archives/2007/03/how_regulation.html/comment-page-1#comment-54765 David Tue, 27 Mar 2007 00:37:59 +0000 http://www.solove.org/archives/2007/03/how-regulation-helps-the-regulated.html#comment-54765 Whoops -- correcting last confusing post. Problem is people would systematically improperly choose EV1(low premium, bad ltc)Whoops -- correcting last confusing post. Problem is people would systematically improperly choose EV1(low premium, bad ltc)< EV2(high premium, good ltc). Without regulation, EV1 could come to dominate the market, even though EV2 provides a higher social benefit. Moreover, when you factor in things like network effects and economies of scale, we need regulation to keep the market from tipping to the wrong standard. Whoops — correcting last confusing post. Problem is people would systematically improperly choose

EV1(low premium, bad ltc)Whoops — correcting last confusing post. Problem is people would systematically improperly choose

EV1(low premium, bad ltc)< EV2(high premium, good ltc).

Without regulation, EV1 could come to dominate the market, even though EV2 provides a higher social benefit. Moreover, when you factor in things like network effects and economies of scale, we need regulation to keep the market from tipping to the wrong standard.

]]> By: David http://www.concurringopinions.com/archives/2007/03/how_regulation.html/comment-page-1#comment-54764 David Tue, 27 Mar 2007 00:34:26 +0000 http://www.solove.org/archives/2007/03/how-regulation-helps-the-regulated.html#comment-54764 Good point, Matt, but I'm not sure the market would completely correct itself, even if that information is widely available. Prospect theory has found that people are more risk-seeking when it comes to losses, and therefore might choose a socially sub-optimal level of insurance coverage. They'll prefer a lower certain loss in terms of a lower premium with terrible LTC than a higher-expected loss from a higher premium but better LTC. Regulation can help correct this imbalance. Good point, Matt, but I’m not sure the market would completely correct itself, even if that information is widely available.

Prospect theory has found that people are more risk-seeking when it comes to losses, and therefore might choose a socially sub-optimal level of insurance coverage. They’ll prefer a lower certain loss in terms of a lower premium with terrible LTC than a higher-expected loss from a higher premium but better LTC.

Regulation can help correct this imbalance.

]]> By: Matt Bodie http://www.concurringopinions.com/archives/2007/03/how_regulation.html/comment-page-1#comment-54763 Matt Bodie Mon, 26 Mar 2007 23:28:41 +0000 http://www.solove.org/archives/2007/03/how-regulation-helps-the-regulated.html#comment-54763 One proviso: there is apparently information available about per capita customer complaints. How did the Times get that information? How widely distributed is it? If there is a way to insure that consumers get this information, the market should take care of itself. But of course bad companies would still be liable for breach of contract. One proviso: there is apparently information available about per capita customer complaints. How did the Times get that information? How widely distributed is it? If there is a way to insure that consumers get this information, the market should take care of itself. But of course bad companies would still be liable for breach of contract.

]]> By: Matt Bodie http://www.concurringopinions.com/archives/2007/03/how_regulation.html/comment-page-1#comment-54762 Matt Bodie Mon, 26 Mar 2007 23:18:50 +0000 http://www.solove.org/archives/2007/03/how-regulation-helps-the-regulated.html#comment-54762 This is a paradigmatic Akerlof-"market for lemons" problem. That's why you need more regulation -- either by statute or through bad-faith common-law contract actions. This is a paradigmatic Akerlof-”market for lemons” problem. That’s why you need more regulation — either by statute or through bad-faith common-law contract actions.

]]> By: Frank http://www.concurringopinions.com/archives/2007/03/how_regulation.html/comment-page-1#comment-54761 Frank Mon, 26 Mar 2007 22:10:53 +0000 http://www.solove.org/archives/2007/03/how-regulation-helps-the-regulated.html#comment-54761 It looked to me like they identified three bad apples in the charts to that story. And I think it's clear more regulation would help a great deal here--that LTC in general will collapse as an industry if people have to be terrified that a few ruthless companies will do anything in their power to deny claims on the flimsiest of reasons. It reminds me of that great book by Shell, "Make the Rules or your Rivals Will." In a properly regulated LTC market, stonewalling tactics like Conseco's would not be fair. But if they are allowed to continue, ceteris paribus, the companies that adopt them may well best the more conscientious providers. As the NAEIC executive said in the story, the big strategy for the unscrupulous here is to fight policyholders till they die. It looked to me like they identified three bad apples in the charts to that story. And I think it’s clear more regulation would help a great deal here–that LTC in general will collapse as an industry if people have to be terrified that a few ruthless companies will do anything in their power to deny claims on the flimsiest of reasons.

It reminds me of that great book by Shell, “Make the Rules or your Rivals Will.” In a properly regulated LTC market, stonewalling tactics like Conseco’s would not be fair. But if they are allowed to continue, ceteris paribus, the companies that adopt them may well best the more conscientious providers. As the NAEIC executive said in the story, the big strategy for the unscrupulous here is to fight policyholders till they die.

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