Thursday, October 07, 2010

Contra Long


Writes Roderick T. Long:

1. Should a fire company be legally required to put out the fires of nonpayers?

In a free market, the answer is obviously no. In an oligopolistic market where the company is the beneficiary of artificial restrictions on competition -- or, as in the recent case, is an actual government monopoly -- the case for yes grows a lot stronger.

I guess the Obion, County Tennessee firefighting market is oligopolistic -- and moreover, artificially/coercively so, to the extent that the South Fulton city fire department is subsidized by city taxpayers, where private competitors would not be.

So long as South Fulton is willing to fight fires for rural county "subscribers" at $75 per year, the market for a private for-profit alternative shrinks and is distorted. Presumably the South Fulton FD couldn't charge such a low fee if its equipment and operating overhead weren't tax-subsidized. The same distorting effect applies to efforts to get the county voters to approve a tax-supported county fire department -- why reinvent or buy a copy of the South Fulton wheel when that wheel is for rent?

It is not, however, an "actual government monopoly" outside the city limits of South Fulton (it may not be one even inside the city limits of South Fulton). There's no law to stop a private firefighting company from setting up in the county, or to keep the county's residents from forming a volunteer fire department (there are a bunch of volunteer fire departments in Tennessee, including at least four in Obion County), or to keep the county's voters from supporting formation of a tax-subsidized firefighting operation.

That's not the only part of Professor Long's article I disagree with.

I reject the notion that a "positive obligation" exists to provide a service that one has offered for a fee if the fee hasn't been paid.

I also disagree that "[s]eeing a nonpayer forced to pay full price for having their house saved seems like sufficient incentive." As I've pointed out elsewhere, fire protection is basically a long-shot hedged bet. If you can still get the payoff without tying up your money by placing the bet in advance, even if you have to pay something of a premium, you're a lot less likely to make that hedged bet.

And the hedged bet is probably what allows the fire department, private or public, to equip itself, train its personnel, and keep them on the clock to respond if you "win" that bet. There are other possible mechanisms, e.g. selling stock in the department and such, but my guess is that a firefighting operation that bills at point of service instead of generating ongoing subscriber revenues isn't going to be nearly as attractive to investors, for the same reason that the hedge bet isn't placed if the payoff is available without placing it ... the return becomes less certain, less even, etc.

But, it's a thoughtful piece, anyway, so raad it.

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