Firefighting is not a public good

In economics, public goods are ones that are (a) non-excludable and (b) non-rival. Non-excludable means that it is impossible to stop someone from enjoying the public good. For example, radio broadcasts can be picked up by anyone with a receiver. Non-rival means that one person's consumption of the good does not limit the amount available for others. For example, your consumption of this blog post does not in any way reduce the amount of blog post available for others to enjoy.

As I have argued elsewhere, there are few examples of pure public goods. Radio signals, for example, can be encrypted, and if a million people all tried to read WCI simultaneously the website would crash.  So authors of public economics textbooks tie themselves in knots trying to think of examples of public goods other than lighthouses, national defence, and fireworks. 

Is firefighting a public good? Surely it is, because even though, in theory, the firefighters could choose not to put out your fire, they never would, would they?

Actually, they might. In Obion County, Tennessee, firefighters stood by as Gene Granick's house burnt to the ground, because he had not paid his $75 contribution to the cost of firefighting.

There are two lessons from this story. One is about the nature of excludability. The ability to exclude is not absolute. It depends upon technology in the conventional sense - for example, the availability of encryption technology for radio signals.

Social technology matters too.

"I thought they'd come out and put it out, even if you hadn't paid your $75, but I was wrong," said Gene Cranick.

Mr Cranick thought that social norms made exclusion impossible. But social norms change.

The second lesson is a point I have made before. The public good concept is not useful. There are few goods that are both non-rival and non-excludable. Confounding the two concepts (non-rivalry and non-excludability) prevents cogent analysis of each individual concept. Moreover the "public" in public goods confusingly suggests that public goods are, in some sense, publicly provided - yet there is nothing whatsoever in the conventional economists definition of public good to suggest that this should be the case.

(Thanks to Bruce Foster for finding this gem.)

Comments

[Stephen Gordon]

Excellent. I've seen a few items on this story, but no-one else seems to have made this point.

And you're quite right: too many people throw around the term 'public good' in contexts where it doesn't apply. And contexts where it *does* apply are few and far between.

[anon]

The reason firefighting services are generally considered a public good is because putting out fires in a single location has a positve externality on nearby properties, by reducing the risk that the fire might spread to those properties.

This positive externality may be only a small fraction of the value of firefighting services, but it is indeed non-rival (it does not detract from the value of putting out the fire in the original property) and non-excludable (neighboring properties will necessarily benefit when the fire is extinguished).

Nevertheless,the externality is localized enough that a Coasean solution may be feasible; perhaps property owners should pay their neighbors for contracting with fire-fighting companies, and companies should offer a discount to properties which have fewer fire hazards nearby.

[Stephen Gordon]

Actually, the firefighters finally did intervene when the fire threatened the house of a neighbour who *had* paid the fee.

[Robillard]

I think you're right; firefighting is not a public good. However, I would add that firefighting is something that has large positive externalities, which probably explains why in most places it is paid for collectively. If I were a home owner and my neighbour's house was on fire, paying firefighters to put out the fire has positive benefits for me. If my neighbour pays the firefighters to put out the fire, I cannot be prevented from benefiting from the reduced risk of my own house catching fire (which is perhaps something different from my house actually being on fire, needing to be extinguished).

So, to this I would add that firefighting is rival to the extent that firefighters time is finite; time spent putting out my house fire is time that they might not be able to spend putting out another fire. Firefighting is also excludable, to the extent that firefighters can refuse to put out my house fire; however, the secondary benefit of reducing fire risk to neighbours is not excludable.

[Nick Rowe]

On the high seas, I think the firefighters could have claimed salvage rights? It would have worked in this case. The allocation of resources was not Pareto Optimal.

(Didn't Maude Barlow give a talk on "Public Goods" at Carleton last week? I wonder if it really was about public goods. When I was Canadianising the first edition of Mankiw, the copy editor crossed out my example of a public good, and wrote in "University Education" instead, with a side-note "Unlike the US, university education is a public good in Canada".)

[anon]

"So, to this I would add that firefighting is rival to the extent that firefighters time is finite"

This is only partly true. Firefighters' time is a _marginal_ cost of providing firefighting services to a property, but the firefighting department probably has high fixed costs. Generally speaking, fixed costs can be considered non-rival, at least in simple cases.

[Nick Rowe]

I wonder to what extent firefighting does exhibit economies of scale (fixed costs, MC below ATC). One engine cannot be in two places at once. But if house fires are uncorrelated random variables, that should create some economies of scale. But then there's travel time, so it depends on housing density rather than just number of houses. It does look a bit like local natural monopoly.

[Frances Woolley]

Robillard: "I think you're right; firefighting is not a public good. However, I would add that firefighting is something that has large positive externalities, which probably explains why in most places it is paid for collectively." Agreed, and so:

How do the questions we ask and answers we get depend upon whether we look at firefighting as sort of a public-ish kind of good or something that generates positive externalities? Anon's comment is a classic example: as soon as the question is framed in terms of externalities, the possibility of a non-governmental Coasian solution comes up.

[Account Deleted]

I agree that the concept of a pure public good isn't terribly useful. Even the usual textbook examples are generally wrong. National defence is often cited. But that's a club good, not a public good: non-rival for technological reasons (e.g., it would be prohibitively costly to have a national missile defence system set up so that someone who hasn't paid by can blown up by an enemy missile), but most certainly excludable. The exclusion mechanism being, of course, passports and borders. A true pure public good, if it existed, would surely have to be non-excludable globally? So a planetary missile defence system would fit. But then once we discover our friends the Vulcans, it won't fit anymore.

A second point: aren't rivalry and excludability a matter of degree? Your point about a server crashing if too many people log in at the same time being an example. So rivalry and excludability are presumably defined over the relevant range.

[Patrick]

I guess policing isn't a public good in the economic sense either. That could make for some interesting situations.

People just use different definitions of "public goods" so they end-up talking at cross purposes. I'm sure if you asked most people what a "public good" was, you'd get answers ranging from "goods/services provided by the government" to something about philanthropy. In a random sample of 1000 people I'd be surprised if you got more than a handful who gave the strict economic definition.

[Patrick]

If you have fire insurance it probably wouldn't make sense to pay the fire dept fee (unless the insurance company forced you to). In a rural area, what are the chances of the fire dept. getting there in time to same much of anything?

It'd be more interesting if they had let someone die because they didn't pay the fee. As it is, only property was damaged. I wonder, would they stand around and let someone burn to death because they hadn't payed their fee?

[Traciatim]

"For example, your consumption of this blog post does not in any way reduce the amount of blog post available for others to enjoy."

So your servers have unlimited scalabe free bandwidth?

[Stephen Gordon]

When I was Canadianising the first edition of Mankiw, the copy editor crossed out my example of a public good, and wrote in "University Education" instead, with a side-note "Unlike the US, university education is a public good in Canada".

Wonderfully ironic. Yet another unexpected teaching moment!

[Frances Woolley]

Vivek "National defence is often cited. But that's a club good, not a public good: non-rival for technological reasons (e.g., it would be prohibitively costly to have a national missile defence system set up so that someone who hasn't paid by can blown up by an enemy missile), but most certainly excludable. The exclusion mechanism being, of course, passports and borders."

Notice also that only when the concept is framed in an abstract, general sense i.e. "defence" does it seem natural to think of it as a public good - the actual components of national defence e.g. helicopters, army bases, etc are certainly rival - and political!

Patrick: "In a random sample of 1000 people I'd be surprised if you got more than a handful who gave the strict economic definition." And every single one of them would have been people who'd taken a university level economics course!

[Frances Woolley]

Patrick: "I wonder, would they stand around and let someone burn to death because they hadn't payed their fee?"

An interesting example of how "social technology" makes protection of property "excludable" but protection of life "non-excludable".

[Just visiting from Macleans]

This is a misleading example to support your argument. Local gov'ts can arrange their firefighting services in any way they care to. It appears the city of South Fulton funds their firefighters through property taxes. Those in Obion County presumably determined that maintaining a full service fire dept was uneconomic, property density etc (as NR points out) did not lead to economies of scale:

Each year, Obion County residents must pay $75 if they want fire protection from the city of South Fulton.

So, residents of Obion County were essentially offered an insurance policy:
for $75/yr you will receive firefighting services from the city of South Fulton. If you don't subscribe, you are not covered.

How is this any different than taking out home flood insurance?

[Nick Rowe]

Patrick: in rural areas, the insurance premium you pay depends (quite a lot, IIRC) on how many kilometres you are from a fire station. IIRC, under 5kms is one premium, between 5 and 25 another, and over 25 the premium is about 50% higher?

JVFM: there is one difference from an insurance policy: once the house is burning, all the insurance can do is transfer wealth. The fire department can create wealth (or, rather, stop wealth being destroyed).

I still think that the best (or second best) policy is for the fire department by law to get a claim on the remaining value of the house if the owner hasn't paid insurance. Some weighted average of the full value of the house and the full cost of putting out the fire. Creates the right incentives all round.

I think, in the olden days, competing fire engines would stand outside the burning house haggling over the price to put out the fire. Not first best. Transactions costs. Hold-up costs. Plus inefficient risk-transfer.

[Just visiting from Macleans]

JVFM: there is one difference from an insurance policy: once the house is burning, all the insurance can do is transfer wealth. The fire department can create wealth (or, rather, stop wealth being destroyed).

Well, if I was a resident of South Fulton I would argue that the wealth being transferred is from me (who pays property taxes) to those in Obion County who are freeloaders and who don't pay the marginal cost of providing fire fighting services, but only cough up if fire actually happens.

So, my South Fulton property taxes will eventually go up as a result of a benevolent fire chief. No thanks, I'd argue.

[Just visiting from Macleans]

Btw, a way around this conundrum might be a compromise sol'n.

An opting out clause: If you decline the $75/yr insurance policy, then for every 911 callout there is a direct cost of say $300; and firefighting services are $3,000/hr, for example, plus costs (water, fuel etc)

[Frances Woolley]

Just visiting: "This is a misleading example to support your argument. Local gov'ts can arrange their firefighting services in any way they care to."

Whether or not something is a "public good" in the sense that this phrase is used in economics courses has absolutely nothing to do with how local governments arrange firefighting services. Public goods can be privately financed and provided, e.g. this blog, or publicly financed and provided, e.g. lighthouses, or some combination of both.

What makes something a public good (as economists use the phrase) is the technical properties of that good - nonrivalry and nonexcludability. If you can exclude people from benefiting from the service e.g. as this example shows is the case with firefighting, then it is not a public good, even if it is financed and provided by government.

[Stephen Gordon]

One reason why it's so important to get the terminology right is that while almost no-one seems to know what a public good is, everyone seems to know about the recommendation that public goods should be provided by the government at zero price.

Saying that X is a public good when it isn't leads to any number of misunderstandings about what sort of policies are appropriate.

[Just visiting from Macleans]

If you can exclude people from benefiting from the service e.g. as this example shows is the case with firefighting, then it is not a public good, even if it is financed and provided by government.

But, in this example, it is not "financed and provided by government" - "no taxation without representation" the slogan used to rally the revolutionists in the past.

The services offered in this article to Obion County residents are not by their gov'ts. So, irrelevant, in my opinion. The same situation - allowing a building to burn unserviced by the fire dept in South Fulton is undocumented.

[Dan]

Good being public is not the only reason for the government to provide it. If the market solution would not exist, say due to adverse selection, it would be a perfectly good reason for the government to provide the good and tax everyone.

I don't think private for-a-fee firefighting could exist, except for in a densely populated areas. So the case for the government to do it is pretty strong no matter whether the service is excludable or not.

What is happening in this case - local government is suffering 'tax hike' stigmata and raising fees instead. It's happening all over USA anyway. Have a look:
http://www.nlc.org/ASSETS/AE26793318A645C795C9CD11DAB3B39B/RB_CityFiscalConditions2010.pdf

Perfectly reasonable and expected, except for the type of service they chose.

[Rahul]

A wonderful post.

I think the real difference should lie in the intent rather than ability to exclude or rival. The ability is result of your intent to exclude. Roads, it was argued long ago, were public goods - then we got toll roads. Fire, as your example points out, is no longer public. We can argue about the micro-details. For example what happens when a goods of tourist are on fire, the tourist has not paid the $75 or whatever, and let us assume the insurance does not cover the loss, so will fire fighters simply watch? I doubt it.

Your point about social technologies is very important.I would still call it social norm though.

When we talk of intent, the real picture should get clearer. Canada may intend to have university education and health care as public good. Others may not. The choice reflects on the standard of living of the country. In that sense sometimes "public good" means made available to general public. May it is time to redefine the "public good" concept.

[yohanna]

Thanks Frances for this post! The concept of public goods, and global public goods, is increasingly used the development field in the most unhelpful (ie erroneous) way. Interestingly, some of this work is endorsed by Paul A. Samuelson, 1970 Nobel in economics (resting your case Frances): http://www.undp.org/globalpublicgoods/globalization/commentaries.html

I shall bookmark this - it might be useful to have a sound explanation handy of what is and isn't a public good next time I have to go through a report on public goods, global or otherwise.

[Frances Woolley]

Yohanna - May I put in a plug for a paper written by David Long (I'm listed as a co-author, but my contribution was very minimal) on Global Public Goods: A critique of a UN Discourse appearing in Global Governance in 2009?

[Passing By]

Professor Woolley --

Actually, fire-fighting is a public good.

It seems plausible that the service could be provided privately and non-payers could be excluded (as just happened in Tennessee). But, in fact, private for-profit firefighting services were tried in the past and they don't work very well. The private providers have enormous incentives to 'stimulate demand' via arson. (Also, as noted above, fire on one property can easily spill over to neighboring properties, at least in urban areas.) Taken together, these problems drove the creation of municipal fire departments.

So fire fighting is actually pretty similar to policing. It may seem plausible that private security services could replace law enforcement. But the private services tend to turn into protection rackets, 'stimulating demand' ("Nice place you've got here. Pity if something happened to it.")

[Frances Woolley]

Passing by: Two issues.

The "public good" concept as taught in econ courses is all about non-rivalry and non-excludability. ***There is nothing at all in the economists' public good concept that says 'public goods must be provided by government.'*** (do a scholar.google.com search for 'privately provided public good' and you will find hundreds of papers).

A publicly provided good is a totally different concept.

You write:

"So fire fighting is actually pretty similar to policing. It may seem plausible that private security services could replace law enforcement. But the private services tend to turn into protection rackets, 'stimulating demand' ("Nice place you've got here. Pity if something happened to it.")"

I agree. These kind of hold up and perverse incentive problems matter. But thinking of firefighting as a public good blinds us to these very real issues, because it causes us to focus on non-rivalry and non-excludability, which aren't necessarily the most interesting issues.

[Just visiting from Macleans]

FW, I must be thick as a board. Focus ONLY on South Fulton residents. Your two criteria:

1) non-rivalry - pass

2) non-excludability - pass (or are you saying that the fire dept MAY chose to exclude you due to, say, a higher priority fire elsewhere within city limits)

Thx

[Barry]

Stephen Gordon:
"Actually, the firefighters finally did intervene when the fire threatened the house of a neighbour who *had* paid the fee."

IIRC, after some damage was already done.

Jim Henley (of highclearing.com) had an interesting take on this - consider the 'customer service' many of us have received. It'd really s*ck to have the FD operator say "According to our records, you haven't paid. Please contact customer service between the hours of 8AM and 5PM, M-F, if you believe that you did pay. Have a great day, and thank you for calling the Libertopia FD".

I'd also point out that so many people are assuming some sort of rural situation, where fires could be justifiably assumed to be confined to one party's property.

[Frances Woolley]

Just visiting - I could be wrong - Daniel Hamermesh wrote a very similar post to mine in the New York Times http://freakonomics.blogs.nytimes.com/2010/10/06/when-your-house-is-burning-down-how-good-is-a-public-good/ and seemed to come down more on the public goods side.

Here's my take on it.

Non-rivalry means that the cost of providing fire provision to an extra person is zero.

How does this example meet the case of non-rivalry?

Non-excludability means that there is no way of preventing a person from enjoying the benefits of fire protection.

The fire department did exclude.

Barry - the advantage of thinking about fire fighting in terms of positive externalities is that instead of just *assuming* that one person's fire protection benefits everyone else we have to think *how much* *when* and *why* does one person's fire protection benefit other people. Asking a better question generates much more interesting and useful answers.

[kensei]

"Non-rivalry means that the cost of providing fire provision to an extra person is zero."

There are high initial / fixed cost, but once the infrastructure is in place then marginal costs are going to be low.

"The fire department did exclude."

You are defining to an edge case. If there had have been someone in the building, would it have been excluded? The result may be negilence, perhaps murder charges. If weather conditions were bad, could they exclude? If the fire spreads too quickly to multiple neighbour's houses, it might be too dangerous to allow to burn. Similarly if you have denser housing. Or what if those next door demanded they put it out because they didn't want to wait until *their* house actually caught fire, thankyouverymuch?

Perhaps in the strictest technical definition it isn't, but the probabilities and costs are such that it is a de facto public good in the real world. Given that economics is not physics with unbending rules, it seems reasonable enough. If you must, call them WCI public goods and stick them in a text book.

[Just visiting from Macleans]

FW, thanks for the freakonomics link. The author seems to be making the same distiction that I originally made:

Is fire protection excludable? In a small town, with widely separated houses, it may be—after all, what is the harm to me if the house of the family who hadn’t paid its tax burns down? In such a case, the best argument for requiring payment of the fire-protection fee is that there are economies of scale in providing protection. But then the fee should be compulsory—a tax. In a suburb or city, the density of dwellings means that there are such large externalities that fire protection is non-excludable.

[anon]

"When we talk of intent, the real picture should get clearer. Canada may intend to have university education and health care as public good. Others may not."

One problem with this is that university education and healthcare are _rival_ in addition to being excludable: labor costs at the margin are high, and facilities are often congested. If anything, making the services non-excludable turns them into commons resources.

There are some public-goodish inputs to these services, such as prescription drugs and educational resources, but the services themselves are definitely private.

[David]

Just to be a little pedantic, I think your blog posts are rival and are thus not a public good.

I prefer to read and participate in comment sections where there are a small number of comments, since I find lengthy comment sections overwhelming to read and find that my comments are more likely to get overlooked by the post authors. Thus, others' consumption of the blog, at least in terms of commenting, diminishes the benefit I get from consuming your blog.

Not to mention that you can password-protect a website to ensure that only paying subscribers view it, thus making your posts excludable as well as rival.

[Nick Rowe]

David: Damn! Bang goes another example of a pure public good! Are there any left?

[David]

I doubt there are any pure public goods, but there are probably a lot of goods that are really close (such as your blog).

[David]

Actually I spoke too soon. Radio and over-the-air TV probably qualify.

[Stephen Gordon]

Except that - as Frances noted in the OP - they can be encrypted, thus failing the non-excludability criterion.

[Jesse]

Regarding encrypted radio and TV -- while such encryptions may be secure at the time they were introduced, it is a reasonable bet that such security will erode over time. At that point, either it becomes a public good again, or government acts to make pirate receivers illegal (excludability deliberately created by law).

Or, a third option is to obsolete the installed base of equipment, but companies seem to prefer the convenience of the government option.