Abstract
It has been known for a long time that regulation induces firms to behave inefficiently. Most analytical work on this question relates to static inefficiency effects of regulation such as overmanning or overcapitalisation. This chapter looks at the dynamic inefficiencies created by regulation. It is shown that the price formation rules, as specified in the regulatory laws, can create price fluctuations and are thus an autonomous factor of instability. Dynamic inefficiency of regulation has received little attention up to now (cf. Klevorick, 1973; Hubka and Obermann, 1977). It is shown to be present in the Swiss motor car liability insurance. The rules of the legal framework are translated into a system of equations. The solutions to this system of equations represent the outcomes of the regulatory process. This mathematical treatment of regulatory rules reveals properties of law which are not apparent from the purely verbal analysis traditionally used by the legal profession. The regulation-induced price instabilities caused political opposition and protests, effects which are contrary to the objectives of the regulatory scheme.
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The authors are indebted to C. C. von Weizsacker, H. Kunreuther, D. C. Mueller, B. A. Weisbrod, Fr. Schneider and to Dr Dubey, Dr Bichsel and Mr Diethelm for their helpful comments. The authors are, however, responsible for all remaining errors in this chapter.
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References
Hubka, B. and G. Obermann, (1977) ‘Zur Wahlzyklik wirtschaftspolitischer Maßnahmen’, Empirica, vol. 1, pp. 57–83.
Klevorick, A. A. (1973) ‘The Behavior of a Firm Subject to Stochastic Regulatory Review’, Bell Journal of Economics, vol. 4, no. 1 pp. 58–88.
von Weizsäcker, C. C. (1980) Barriers to Entry (Heidelberg, Berlin, Tokyo, New York).
Official Sources
Bericht der Studiengruppe für die Motorfahrzeughaftpflichtversicherung an das Eidg. Justiz- und Polizeidepartment vom 1, Oktober 1974.
Botschaft des Bundesrates an die Bundesversammlung zu einem neuen Bundesgesetz über die Beaufsichtigung privater Versicherungseinrichtungen vom 5. Mai 1976; Bundesblatt 1976, II, pp. 873–925.
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Gutachten der Eidgenössischen Konsultativ-Kommission für die Motorfahrzeughaftpflichtversicherung (several years).
Kartellkommission (1972) Die Wettbewerbsverhältnisse in der schweizerischen Motorfahrzeughaftplflicht-Versicherung, Veröffentlichungen der schweizerischen Kartellkommission, 7. Jg., Heft 2, 1972, S. 118–180.
Verordnung über die individuelle Nachkalkulation in der Motorfahrzeughaftpflichtversicherung (VINK) vom 5, Juni 1979, SR 961.253.
Verordnung über die Motorfahrzeughaftpflichtversicherung (VMHV) vom 5, Juni 1979, SR 961.25.
Die Wettbewerbsverhältnisse in der schweizerischen Motorfahrzeughaftpflichtversicherung, Veröffentlichungen der schweizerischen Kartellkommission, 7. Jg., Heft 2, 1972, pp. 118–80.
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© 1986 Jörg Finsinger and Mark V. Pauly
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Blankart, C.B., Finsinger, J. (1986). Regulation-induced Price Instability in Swiss Motor Car Liability Insurance. In: Finsinger, J., Pauly, M.V. (eds) The Economics of Insurance Regulation. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-18397-5_7
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DOI: https://doi.org/10.1007/978-1-349-18397-5_7
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