Re: AltInst: Legislation insurance

From: George L. O'Brien <>
Date: Tue Apr 28 1998 - 16:25:01 PDT

>Financial derivatives and asset management can allow one to insure against
>a wide variety of risks for which good historical statistics are unavailable.
>And insurance organizations like Lloyds of London have insured people against
>many unusual and unrepeated risks. It is true that big insurance companies
>prefer to focus on risks with good statistics, but other risks can and are
>often insured.
>Btw, someone once suggested that the government issue policy-choice
>and then make the policy choice that minimized the insurance payout.
>(See Mueller's "Public Choice", p. 69.
>Robin Hanson
>RWJF Health Policy Scholar, Sch. of Public Health 510-643-1884
>140 Warren Hall, UC Berkeley, CA 94720-7360 FAX: 510-643-8614
>From George O'Brien

It is certainly true that you can insure for just about anything. It is
also true that most of the time it is not economical to do so for vaguely
defined risks.

In my role as coordinator for the Phoenix St. Patrick's Day Faire, we were
faced with the issue of dealing with being totally rained out. We could
have purchased "rain" insurance to cover our losses.

The problem was that the cost of the insurance would have been a high
proportion of our total risk (the lost revenues). In order for the
insurance to pay out all, we would have had to have been totally rained
out. As it was, the rain did not hit until after the fair had been going
for about 2 1/2 hours. So even if the insurance had been in effect, we
would not have been covered for the reduced revenues.

Political insurance would be even worse. Every possible contingency would
have to be covered to ensure a payout. Even when it has been covered,
there is still the problem of collecting on insurance when the nature of
the risk is problematic such as with changes in legislation. Once taken to
court, there is always the concern that collection would be twarted by the
notion that collecting would contravene public policy.

In general, "hedging your bets" is probably the only alternative available
for most people.

George L. O'Brien

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Received on Tue Apr 28 16:45:04 1998

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