1. Competitors have a total of XX GGE (http://en.wikipedia.org/wiki/Gasoline_gallon_equivalent) of fuel per 100km of race distance. 2. Competitors may not use a device that prevents unusual risks to other drivers, spectators, or race officials.
Done. End of rule book.
The fuel mileage limit will encourage teams to optimize for effciency...beyond that let them have at it.
I would like the rules to be more open as well. The Hybrid Systems for LMPs have to be homologated at the start of the year which prevents development of them during the year. Also the Hybrid systems are limited to only being able to collect certain amount of energy.
The problem is the people paying the bills on LMP projects are the ones that have the say on the rules. And the people paying the bills dont want the costs to get out of hand. Which admittedly if they went to a more unlimited rules package could happen.
1. Cars would be clued to the road with massive downforce and it would look like they are on track in turns. Very boring races without overtakes. Races would be determined in time trials.
2. Building competitive car would be even more expensive than it is now. There would be only few competitive teams, some years maybe only one.
3. Several teams would eventually drop out because racing would be too expensive.
Some races from the ground effect era 1977 to 1982 were ridiculous. Wing-profiled sidepods sealed to the ground by sliding lexan skirts. It took gigantic amount of rules changes to cover all loopholes.
If you look at the technical regulations in F1, they have two main aims - ensuring driver and spectator safety, and controlling costs to maintain competitive racing.
Most of the current technical regulations are just special cases of your rule 2. Moveable aerodynamic devices are banned to prevent sudden loss of mid-corner traction (causing the car to violently roll off into the grandstands). Many of the dimensional restrictions are there to prevent the use of ground effect, for similar reasons. Wheel tethers reduce the chance of a wheel flying off and killing a spectator (something that has happened in several motorsport formulae). Restrictions on fuel composition prevent teams from using explosive fuels or oxidizers. Limits on wing sizes and aspect ratios restrict downforce, to ensure that the drivers aren't subject to intolerable g-forces.
The culture of F1 is based around a belief that there is no such thing as the spirit of the law, only the letter. Devious loopholes are applauded for their ingenuity and characterise most development in the modern sport. On the other hand, many people in the sport remember the dark days, when driver fatalities were just part of the sport. Teams and drivers understand that in the absence of regulation, the Nash equilibrium inevitably entails dead drivers and dead spectators.
The F1 rulebook isn't an external imposition on the sport, it is a document that is designed by mutual agreement between Bernie, FOTA, the FIA and the GPDA. Every word of it has been hard fought and represents the least-worst compromise between those various interests.
Unrestricted racing is a trope that is often raised by outsiders to motorsport, but the reality is that without the technical regulations, there is no racing at all, just a contest to see who can spend the most, with a mortuary full of charred and mangled drivers as collateral damage.
I should point out that there was a time (not, coincidentally, imo, arguable the greatest period in F1 history) when the constructors were given substantially more leeway - look at the golden age when some builds came out with mid-engined vehicles for instance, real innovation at the time, or other innovative layouts like the Tyrell P34 6-wheeler, or the fan cars, or the turbine cars that ran at Indianapolis (not F1, but close, and many F1 cars were entered at Indy in those days).
Unfortunately the content doesn't really go into much detail on how things changed but focuses more on the events leading to the changes. I'm not a motor racing enthusiast but still found it interesting viewing.