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> That's what insurance is for What are the outcomes for using insurance, and what are the outcomes for using regulation? Does anyone know the answers in a tec

> That's what insurance is for What are the outcomes for using insurance, and what are the outcomes for using regulation? Does anyone know the answers in a technical policy sense (not in a philosophical sense)? They are different tools useful for different problems. Thinking out loud, insurance seems like a poor solution when people will suffer serious, irreparable harm. If the lawnmower severs a foot, then an insurance payout isn't really sufficient; regulations should prevent that from happening in the first place. More broadly, my point is that there are larger issues than economics. > Presumably, the manufacturer will pass on the costs of those insurance premiums to the consumers. In economics, that is not the case. Businesses don't price goods at 'cost-plus'; they don't look at their costs and add a profit margin. Think of the soda at the movie theater on one hand, and on the other the car being sold at a loss because the market is soft; think of software. Like all businesses, the lawnmower manufacturer already is pricing their product at the level that maximizes total sales revenue, which depends on supply and demand; raising the price will reduce revenue (probably because unit volume will decrease too much to be compensated for by per-unit revenue increase). If they could raise the price and bring in more revenue, they would have done that already. There is an issue of elasticity: If your customers' alternatives are limited - i.e., if they can't go without your product, if there are limited competitors and substitutes - then you can raise prices more easily. A Van Gogh painting is highly inelastic; lawnmowers are much less so.

cobbzilla 9y ago
> What are the outcomes for using insurance, and what are the outcomes for using regulation? Bad question, false dichotomy: these are not apples-to-apples comparisons. How about some minimal regulations that include an insurance requirement?
- Nomentatus 9y ago
  Even "insurance" is a distraction, the argument is really about tort law (which raises the insurance rates, case by case.) Note that ordinary risks aren't economically insurable, almost by definition, so corporations insure far less than most people would guess. A building burning down is an ordinary risk for a conglomerate so it may not be insured - insurance is too expensive since the company can more cheaply absorb the risk itself.) So I agree: yes, the existence of tort law sometimes obviates the need for regulation; but has hardly banished regulation or the need for it entire!
icebraining 9y ago
In economics, that is not the case. Eh, more or less. Increases in the price of supplies sometimes do lead to an increase in the end price of consumer goods. I agree that this is more likely to happen for inelastic goods, though.
shubb 9y ago
On insurance vs regulation - What isn't being mentioned here is that insurers will require insured companies to do a bunch of stuff in order to remain insured. Have some processes in place, do some things, and so on. Just like your car insuruance isn't valid if you drink and drive, your software company insurance might not be valid if you aren't using source control and have no testing or code review proccess. So in some ways, what you get out of insurance is market driven 'regulation'. Possibly, because a rival insurance company can impose different conditions, insurers are incentivised to require only the stuff that really reduces risk, while regulators might make irrational regulations driven by moral panics in the press. Similarly, they might be more responsive to supporting new technqiues that reduce risk at lower costs, because customers will seek out an insurer that lets them use those. Possibly, insurers are less suceptible to moral hazard, where regulator employees have close relationships with industry heavyweights and make policy that helps their buisness, at the expense of consumers and sector rivals. Insurers mostly want to make money. Regulators might be better sometimes because their staff tend to be very mission driven (they want to fix the problem, not make money). They will get a kicking from the public if there is a big accident and laws and regulations did not prevent it, while an insurer is only punished if they don't satisfy current law. So a regulator might be more proactive.
- forapurpose 9y ago
  Excellent points; thanks. I'd only add that the insurer's incentive to reduce risks to their profits is not always aligned with consumer's risks. As a simple example, the insurer may require the vendor to have consumers sign away their legal rights to reduce the risk of expensive lawsuits.

cobbzilla 9y ago

> What are the outcomes for using insurance, and what are the outcomes for using regulation? Bad question, false dichotomy: these are not apples-to-apples comparisons. How about some minimal regulations that include an insurance requirement?

Nomentatus 9y ago
Even "insurance" is a distraction, the argument is really about tort law (which raises the insurance rates, case by case.) Note that ordinary risks aren't economically insurable, almost by definition, so corporations insure far less than most people would guess. A building burning down is an ordinary risk for a conglomerate so it may not be insured - insurance is too expensive since the company can more cheaply absorb the risk itself.) So I agree: yes, the existence of tort law sometimes obviates the need for regulation; but has hardly banished regulation or the need for it entire!

icebraining 9y ago

In economics, that is not the case. Eh, more or less. Increases in the price of supplies sometimes do lead to an increase in the end price of consumer goods. I agree that this is more likely to happen for inelastic goods, though.

shubb 9y ago

On insurance vs regulation - What isn't being mentioned here is that insurers will require insured companies to do a bunch of stuff in order to remain insured. Have some processes in place, do some things, and so on. Just like your car insuruance isn't valid if you drink and drive, your software company insurance might not be valid if you aren't using source control and have no testing or code review proccess. So in some ways, what you get out of insurance is market driven 'regulation'. Possibly, because a rival insurance company can impose different conditions, insurers are incentivised to require only the stuff that really reduces risk, while regulators might make irrational regulations driven by moral panics in the press. Similarly, they might be more responsive to supporting new technqiues that reduce risk at lower costs, because customers will seek out an insurer that lets them use those. Possibly, insurers are less suceptible to moral hazard, where regulator employees have close relationships with industry heavyweights and make policy that helps their buisness, at the expense of consumers and sector rivals. Insurers mostly want to make money. Regulators might be better sometimes because their staff tend to be very mission driven (they want to fix the problem, not make money). They will get a kicking from the public if there is a big accident and laws and regulations did not prevent it, while an insurer is only punished if they don't satisfy current law. So a regulator might be more proactive.

forapurpose 9y ago
Excellent points; thanks. I'd only add that the insurer's incentive to reduce risks to their profits is not always aligned with consumer's risks. As a simple example, the insurer may require the vendor to have consumers sign away their legal rights to reduce the risk of expensive lawsuits.