Burning Down the House
| Scott Masten |
Peter posted a Facebook link to a Jeff Tucker post on the Mises Economics Blog commenting on the news report about the Tennessee man who didn’t pay his annual $75 fire protection services fee, and the fire department from the neighboring town let his house burn down. Peter, Jeff, and Clifford Grammich (who commented on Peter’s post) cover the issues pretty well. 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?
The alternative would be 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 lawsuits 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.
A bit of (indirect) evidence consistent with this is that, toward the end of the 19th century, densely populated cities were significantly more likely than more sparsely populated cities and towns to own their own water systems. If providing water for fighting fires was one of the major benefits of centralized water (which is true), and if contracting with private water companies for adequate supplies (volume and pressure) was difficult (which is not so clear), it would make sense that densely populated cities — for which the cost of inadequate water supply would have been greatest — would be most likely to own their own waterworks.
Although a number of large fires in the 19th century were blamed on the failure of private water companies to supply adequate water or pressure for firefighting, I’m actually skeptical that this public safety rationale explains municipal ownership of waterworks. As I noted in a paper on 19th waterworks ownership (forthcoming in JLEO), “the great fires in New York (1845), Pittsburgh (1845), St. Louis (1849), Chicago (1871, 1874), Boston (1872), and Baltimore (1904) all occurred in cites with public waterworks. Even after the Great Chicago Fire of 1871, the Chicago Board of Aldermen refused to appropriate money for water system improvements requested by the Fire Department, contributing to Chicago’s second great fire in 1874.” Public ownership of waterworks didn’t clearly solve the problem of water availability for firefighting, but public provision of firefighting services may still be better than the private alternative.