Market Competition for Security Measures

[Jim Choate]

> On Wed, 24 Oct 2001, somebody wrote:
> 
> >Federalizing or socializing the costs of security is like federalizing
> >or socializing flood insurance: it takes the efficiencies of the market
> >away and creates distortions.

It has two advantages over a strict free market model however. The fist
is the market is larger with respect to ability to cover damages because
it spreads the cost out over a larger group. This has two effects. First
it lowers the average cost per user and second during critical
emergencies you can raise larger sums of capital by increasing the
average payout. Especially damages that accrue all at once outside of
'normal' statistical expectations. A sequence of man made and natural
disasters would be one example. The flip side is to realize that this
works for transient spikes only. Otherwise it's simply robbing Peter to
pay Paul (ie Communism).

The second aspect is that the market players are likely to be more stable
from a total lifetime perspective. In some cases this accrues from the
stability of the government, in others this economic breadth stabalizes
the government.


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