(i.e., failing to constrain some inadequately capitalized insurers and inefficiently distort-
ing the decisions of some adequately capitalized insurers). His model predicts that cost
minimizing capital standards will be less stringent the greater is the proportion of insur-
ers that would be adequately capitalized without regulation. An implication is that
optimal capital standards should not bind most insurers in a market characterized by
strong market discipline. He therefore argues that the U.S. RBC system, where most
insurers hold significantly more capital that the required minimums (Harrington, 2004a;
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