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The Allocation of Governmental Regulatory Authority: Federalism and the Case of Insurance Regulation
Author(s) -
Grace Martin F.,
Phillips Richard D.
Publication year - 2007
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2007.00208.x
Subject(s) - incentive , externality , federalism , economies of scale , business , production (economics) , state (computer science) , economics , public economics , market economy , microeconomics , algorithm , marketing , politics , political science , computer science , law
We investigate the incentives states have to provide insurance regulatory services in an efficient manner. Regulation of the insurance industry in the United States is unique, as it is conducted primarily at the state level whereas the majority of insurance sales are interstate. Consistent with predictions from the federalism literature, we find evidence of trans‐state externalities, as states with small domestic insurance markets are less efficient producers of insurance regulation and appear to allow states that choose to expend the greatest resources to regulate for them. In addition, states with more profitable domestic insurers are shown to export greater levels of regulation, suggesting extraterritorial regulation may erect modest barriers to entry. We find evidence of increasing economies of scale in the production of insurance regulation after controlling for these regulatory externalities.