Competition between jurisdictions is a central feature of many public policy problems. I examine the consequences of such competition in the US life insurance industry, where states vie to attract insurers by setting lower capital requirements, but the costs of such actions are borne by consumers in other states. I document empirical evidence of competition between state regulators and its effects on the supply of life insurance. I then develop a quantitative model of the insurance market to evaluate the effects of this competition. I find that competition leads regulators to set lower capital requirements, which increases default risks but also increases consumer surplus by lowering prices. On net, these effects decrease regulators’ utility based on regulators’ revealed-preference objective functions. *[email protected]. Harvard University. I am deeply grateful to my advisors Andrei Shleifer, Jeremy Stein, Adi Sunderam, and Mark Egan. I have also benefited from conversations with Sam Antill, John Campbell, Antonio Coppola, Paul Fontanier, Shan Ge, Nicola Gennaioli, Ed Glaeser, Martin Grace, Robin Greenwood, Sam Hanson, Nathan Hendren, Myrto Kalouptsidi, Elisabeth Kempf, Spencer Kwon, Robin Lee, Yueran Ma, Ariel Pakes, Dev Patel, Gordon Phillips, Ken Rogoff, David Scharfstein, Dan Schwarcz, Ishita Sen, Jesse Shapiro, Emil Siriwardane, Stefanie Stantcheva, Ludwig Straub, Boris Vallee, Jonathan Wallen, Ron Yang, David Zhang, and audiences at TADC, USC Marshall Finance PhD Conference, Bank of Canada, and the Harvard finance, IO, and labor/public finance workshops. A.M. Best Company, S&P, and Compulife own the copyrights to the respective data. I thank the staff and regulators at state insurance departments, actuaries and insurance agents, and industry consultants for many helpful conversations. I acknowledge funding from the John M. Olin Fellowship at Harvard Law School. All errors are my own.

What characteristics of news generate over-or-underreaction? We study the asset-pricing consequences of diagnostic expectations, a model of belief formation based on the representativeness heuristic, in a setting where news events are drawn from categories with extreme distributions of fundamentals. Our model predicts greater overreaction to news belonging to categories with more extreme outliers, or tail events. We test our theory on a comprehensive database of corporate news that includes news from twenty-four different categories, including earnings announcements, product launches, mergers and acquisition, business expansions, and client-related news. We find theory-consistent heterogeneity in investor reaction to news, with more overreaction in the form of greater post-announcement return reversals and trading volume for news categories with more extreme distributions of fundamentals.

We examine the variable annuity market to study conflicts of interest and the effect of fiduciary duty in brokerage markets. Insurers typically pay brokers higher commissions for selling more expensive annuities. Our results indicate that sales are four times as sensitive to brokers’ interests as to investors’. To limit conflicts of interest, the Department of Labor proposed a rule in 2016 holding brokers to a fiduciary standard. We find that after the proposal, sales of high-expense products fell by 52% as sales became more sensitive to expenses. Based on our structural estimates, investor welfare improved overall. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.