Regulatory Competition and Forbearance: Evidence from the Life Insurance Industry

38 Pages Posted: 1 May 2011

See all articles by Michael K. McShane

Michael K. McShane

Old Dominion University

Larry A. Cox

University of Mississippi - School of Business Administration

Richard J. Butler

Brigham Young University - Department of Economics

Date Written: April 29, 2010

Abstract

Regulatory separation theory indicates that a system with multiple regulators leads to less forbearance and limits producer gains while a model of banking regulation developed by Dell’Ariccia and Marquez (2006) predicts the opposite. Fragmented regulation of the US life insurance industry provides an especially rich environment for testing the effects of regulatory competition. We find positive relations between regulatory competition and profitability measures for this industry, which is consistent with the Dell’Ariccia and Marquez model. Our results have practical implications for the debate over federal versus state regulation of insurance and financial services in the US.

Keywords: Regulatory competition, Regulatory forbearance, Insurance regulation, financial services regulation

JEL Classification: G28, G22

Suggested Citation

McShane, Michael K. and Cox, Larry A. and Butler, Richard J., Regulatory Competition and Forbearance: Evidence from the Life Insurance Industry (April 29, 2010). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1826213

Michael K. McShane (Contact Author)

Old Dominion University ( email )

Norfolk, VA 23529-0222
United States

Larry A. Cox

University of Mississippi - School of Business Administration

PO Box 3986
Oxford, MS 38677
United States

Richard J. Butler

Brigham Young University - Department of Economics ( email )

183 FOB
Provo, UT 84602
United States
801-378-1372 (Phone)
801-378-2844 (Fax)

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