Thursday, 7 October 2010

Incentives matter: fire fighting file 2

Previous I posted on one way to deal with the free rider problem associated with firefighting. Now Scott Masten over at the Organizations and Markets blog has extended the discussion. He writes,
My guess is that the reason governments rather than private companies generally provide fire services has a lot to do with the difficulty of pricing fire services. (The Tennessee case involved a quasi-market transaction in that residents outside of South Fulton paid the city of South Fulton for fire protection.) It is certainly conceivable that private fire companies could offer homeowners and businesses a choice between (i) prepaid fire service for an annual fee and (ii) on-demand fire service. But how would you determine the price of the latter? I’m pretty sure you wouldn’t want to negotiate the price while your house is burning down. (Talk about temporal specificity!) And you wouldn’t want to negotiate the price after the fact either: Gee, guys, thanks for saving my house; can I buy you all a beer?
Another problem with on-demand fire services is would the courts enforce any agreement made while the house is burning down? So the obvious alternative is to set the price for on-demand fire protection ex ante.
But this poses problems, too. Either you need a price list (kitchen fire, $X; smoldering electrical fire, $Y; whole-house conflagration, single family ranch-style house, $ZZZZ; and so on) or you set a single price reflecting the cost of the average fire. But even then, you have questions like, what if the fire department were slow to arrive, or sent the wrong equipment or inadequate personnel, or whatever? Even if the department did everything it should, the house might burn down anyway (maybe because, like the first little pig, I’d built my house of straw). You can imagine the law suits over whether or not a homeowner should have to pay the on-demand fire suppression fee if the fire department’s efforts were unsuccessful. Government-supplied fire protection avoids all of these pricing issues. Sure, government supply has its own inefficiencies, but everything’s comparative, and the problems of pricing fire services seem pretty severe to me.
So public provision could be the least bad of two imperfect alternatives.

5 comments:

bob said...

A trivial observation: letting a house burn is incompatible with the socialist world view where incentives and process are irrelevant and only outcomes matter. House allowed to burn down? Well, give firefighting to anyone who won't let that happen again. And since its a socialist who usually holds the median vote...

mike said...

But even then, you have questions like, what if the fire department were slow to arrive, or sent the wrong equipment or inadequate personnel, or whatever? Even if the department did everything it should, the house might burn down anyway (maybe because, like the first little pig, I’d built my house of straw).

you could say the same thing about public firefighters.

If the fire department showed up late, you'd get paid by the insurance company. If the fire department got there in time, you'd get paid much less by the insurance company. if the fire fighting company is neglegent then its a breach of contract (im asuming a reasonable contract) and you sue them.

You can imagine the law suits over whether or not a homeowner should have to pay the on-demand fire suppression fee if the fire department’s efforts were unsuccessful. Government-supplied fire protection avoids all of these pricing issues. Sure, government supply has its own inefficiencies, but everything’s comparative


What lawsuits? If they were unable to put the fire out, then the contract would clearly state whom was liable unless you mean law suits filed by people that dont like the contracts they agreed to?

Finally, why does he pretend that any of these issues are unique to firefighting? you can say the samethings about healthcare, or any other government service. Even automotive mechanics. This is some really shitty thinking

Trevor said...

Losing your home or business to a fire would be an unforseen catastrophic loss. This is exactly what fire insurance is meant to handle. Fire insurance effectively allows you to transfer liability to them. If they don't prevent your home and belongings from being completely consumed by fire, they'll have to replace it all. So it is in the insurer's interest to maintain an effective fire response near it's customers.

Keep in mind that an effective response may or may not include a full-time fire department. It may only need to be in the form of equipment and training for local residents.

Collins said...

Great topic here.
Work of many people on this issue of plastic, there are several plastic materials recycling organic-based view. In February, for example, Imperial College London and bioceramic drug polymer biodegradable plastic from sugar derived from the decay of lignocellulosic biomass. There is also an existing plant more corn starch and plastics based on paper, including household goods and food packaging, bioplastics toys, plastic dynamic Cereplast. Metabolix also several lines of plastic products from corn, in cooperation with partner companies.

Richard said...

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Government ?