Wednesday, 6 October 2010

Incentives matter: fire fighting file

This news report shows one of way getting people's incentive to pay and avoid free riding right:
OBION COUNTY, Tenn. - Imagine your home catches fire but the local fire department won't respond, then watches it burn. That's exactly what happened to a local family tonight.

A local neighborhood is furious after firefighters watched as an Obion County, Tennessee, home burned to the ground.

The homeowner, Gene Cranick, said he offered to pay whatever it would take for firefighters to put out the flames, but was told it was too late. They wouldn't do anything to stop his house from burning.

Each year, Obion County residents must pay $75 if they want fire protection from the city of South Fulton. But the Cranicks did not pay
Basically the county let a guy's house burn down to give everyone else the right incentives to pay the $75.00 fire protection fee. You would assume that the home owner would have willingly paid more than $75 to have his house saved, but the county understood that if they accepted his late payment, it would have caused other residents not to pay their annual fire protection fee. That is one way to deal with free riding!

(HT: Division of Labour)


Eric Crampton said...

I don't think that's the binding problem. Rather, contracts under duress are unenforceable. There will be a price at which the fire department would be willing to run one-offs rather than annual fees. That's pretty obvious if you look at any other service that comes both by subscription and by one-offs. But the fire department getting a "Ok, I'll pay your $25K" would find itself stiffed ex post and unable to get redress through the courts and unable to light the guy's house back on fire to set things right.

bk drinkwater said...

Is it really duress?

Duress is standing in a living room with a lighter and demanding payment. Standing with a hose outside a burning house is just a strong negotiating position.

I guess I'm saying it's not obvious to me that this type of thing is necessarily unenforceable.

That said, I'm not a lawyer. And 'privatize the fire service' is something of a cocktail party piece (or ideological blind spot) of mine.