"
If the powers of government are indeed commensurate with the scope of
its risk transfer and reallocation services - why should it encourage
its competitors? The greater the variety of insurance a state offers -
the more it can tax and the more perks it can lavish on its
bureaucrats. Why would it forgo such benefits? Isn't it more rational
to expect it to stifle the derivatives markets and to restrict the role
and the product line of insurance companies?
This would be true only if we assume that the private sector is both
able and willing to insure all risks - and thus to fully substitute for
the state.
Yet, this is patently untrue. Insurance companies cover mostly "pure
risks" - loss yielding situations and events. The financial markets
cover mostly "speculative risks" - transactions that can yield either
losses or profits. Both rely on the "law of large numbers" - that in a
sufficiently large population, every event has a finite and knowable
probability. None of them can or will insure tiny, exceptional
populations against unquantifiable risks. It is this market failure
which gave rise to state involvement in the business of risk to start
with.
Consider the September 11 terrorist attacks with their mammoth damage
to property and unprecedented death toll.
Pages:
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84