Sunday, April 07, 2013

Firearm liability insurance - my preferred alternative to universal background checks (Part 2)

Part 1 here.
Maybe everyone in America agrees there is too much gun crime. "Too much" is translated into economists' jargon as "negative externality" or "the price is too low." If 30,000 people die in the U.S. every year from firearms, then it must be too cheap to buy, maintain, and use a firearm. The fact that there are an estimated 300 million guns in the U.S. suggests the quantity is far beyond optimal.

Expanding the currently malfunctioning background check system to include private transactions would increase the price and reduce the quantity. But you have a high cost to government of designing a system that is secure and reliable-- something the current system is not. You also are imposing a legal restriction on private citizens-- limiting freedom. To claim that expanded background checks is optimal policy you have to show that the marginal dollar spent to create the system would be better than, say, more money spent on mental health diagnosis and treatment. Given that background checks didn't (couldn't) stop some of the larger mass-shootings that have inspired the policy, I have to wonder if there's a better way. .

Another problem with gun crimes that expanded background checks doesn't solve is the issue of compensating shooting victims. A costly lawsuit that puts the victim's family through a cruel emotional ringer is another negative externality of gun violence. There is also the great cost to police and medical services, which are paid for ultimately by the taxpayer.

Can we find a way to increase the price of the transaction such that the private owners internalize the cost to society of gun violence, including compensation to victims and public services? 

I prefer letting the private market create incentives for people to own fewer guns, rather than the government limiting personal freedoms and restricting voluntary transactions. The government can "nudge" the market in the right direction by imposing a tax-- raising the price of the activity, thereby reducing the amount of the activity.

The Supreme Court recently ruled that requiring people to buy health insurance is legal under Congress' ability to tax. Enter liability insurance for gun owners.

Under current law, owners are not held liable for everything that happens to their gun. If it's stolen and used in a crime, the owner isn't liable. This means owners who don't properly secure their guns aren't necessarily negligent-- as they arguably should be. This article points out that liable-without-fault laws apply to owners of explosives who injure people, no matter how careful they are, and should be applicable to gun owners.

The first step, then, is to hold owners liable-without-fault. That would greatly incentivize even current gun owners to purchase liability insurance on their gun. The NRA currently offers such insurance to their members at quite a low rate, a few hundred dollars a year.The insurance company compensates victims for accidents, pays for legal costs, etc.-- just like your automobile liability insurance.

Anyone who has auto or life insurance knows that actuaries are quite deft at assessing risk. There would be a scale of rates depending on what the gun is typically used for, the history of the owner, his and his ability to secure the gun (safe, locks, etc.). Some good op-eds have been penned on this subject by traditionally conservative sources, so I'll just link to them for longer arguments:
John Wasik at Forbes magazine.
The Economist.
Dan Eastwood

One Democratic lawmaker has introduced legislation in Congress that would charge a $10,000 penalty for not having liability insurance. ($10,000 is pretty cheap compared to what other states have reportedly proposed.) This follows a failure of several state legislatures to pass such laws, claiming that the premiums would be prohibitive enough to violate the 2nd Amendment. But our courts already have no problem denying guns to some people, the only ones facing "prohibitive" premiums would likely be only the very same people. This would obviously also cover current gun owners and not just future ones-- correcting the weakness of expanded background checks.

In short, liable-without-fault legislation combined with a liability insurance requirement would allow people to freely buy and sell guns but hold them responsible by requiring they pay premiums in line with their ability to handle the given gun. This would increase the price of gun, reduce the quantity of guns sold, and provide greater compensation to victims and civil servants.

1 comment:

EastwoodDC said...

Great article Justin. You clearly did your homework for this.