Question: Suppose that a state has a number of low income neighborhoods in its cities that have difficulty attracting businesses to locate there because the businesses find it problematic to secure fire insurance. Insurance companies say they are reluctant to write fire insurance policies in these neighborhoods because of the prevalence of arson fires. If the state legislature passes a law forbidding insurance companies from taking into account the arson experience of a neighborhood when deciding whether to offer fire insurance policies to businesses, predict the likely effect on the insurance market.

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