Arnold Kling  

History of Fire Protection

The Economics of Fire Protecti... Why Do Unions Oppose Merit Pay...

William Polley recommended a paper by Annelise Graebner Anderson. Russ Roberts recommended an essay by Fred S. McChesney.

The point is that fire-fighting began as a private function. Largely volunteer in the U.S. In London, fire brigades were hired by fire insurance companies. As I will argue below, the latter seems like the right model.

She says,

the definition of private property rights, was perhaps inadequate for private enterprise. The problem was that to provide effective fire protection for even a part of the population, all fires had to be fought promptly to prevent their getting out of control. Under the existing legal framework there may have been no reason for any given person to pay for the services of a fire department since, if enough other people paid, the service would be provided free.

He says,

good old-fashioned rent seeking accounts for the rise of public fire-fighting. It explains as well the survival of an entity that, more and more, is losing its raison d'ĂȘtre. Modern building materials are relatively fire-proof, while clothing and other fabrics are flame-retardant. Municipal codes increasingly require sprinkler systems, smoke detectors and other devices to reduce the incidence and costs of fire. So today's fireman has much less to do.

I am skeptical of the pure rent-seeking story. Anderson gives a lot of reasons that the volunteer system evolved toward the municipal system.

I do not know what to make of a volunteer fire department that is supported by the city. Is it a private institution or a public one? It looks mostly public to me, since customers are not charged for fire-fighting services. It operates on a combination of taxes and volunteer labor. But I fail to see it as a robust private-sector institution.

I think we could have competing, private, for-profit fire companies. As I argued earlier, they would charge membership fees. They could charge higher fees based on risk. But with competition you could not charge a fee based on perceived ability to pay. A competitor would undercut you.

I think that the solution to the problem of how to get people to pay the membership fee would come from fire insurance. I would assume that if you want to get fire insurance, the fire insurance company will be much more receptive to writing a policy if you maintain your membership fees. Mortgage lenders, in turn, will require fire insurance. As long as the vast majority of people who own their homes free and clear also obtain fire insurance, not many people would go without fire protection in this scenario.

If someone goes without fire insurance and without fire protection, then I do not see why taxpayers should have to do something for them in case of fire. Such a person owns their home free and clear, so presumably they were not impoverished before the fire. (This is in the theoretical world where fire protection is required by providers of fire insurance, which in turn is required by mortgage lenders. I do not know about the recent example of the guy who didn't pay dues to the nearby municipal fire department and consequently had his house burn down. I am thinking, though, that if the house had a mortgage, the mortgage lender probably wishes that it had required dues payments be placed in escrow so that the lender could have made sure that the dues were paid.)

We could have taxpayers pay to put out the fire in order to protect neighboring properties. We also could have a law that says that if taxpayers need to pay to put out a fire on your property to protect neighboring properties, you can be stuck with a hefty bill from the taxpayers.

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COMMENTS (11 to date)
Joel writes:

I live up the street from an old folks home, and several times a week a big red fire engine shows up, sirens blazing. And it's not because the place is on fire.

At least in this part of the country, most of the firetrucks I see are responding to medical emergencies. I feel like I read somewhere that this is in their union contract, although I can't find where now. In any case, I consider this evidence for rent-seeking. (I can't imagine that an old person who falls in the bathtub needs the services of a fire engine, and if we didn't send fire engines to old-people slip-and-falls, we'd need a lot fewer firefighters.)

John S Cook writes:

Issues associated with a large bush fire were reviewed in a recent official commission of inquiry in VIC, Australia. The problems can be far more extensive in some areas than much of your discussion seems to be indicating. See 2009 Victorian Bushfires Royal Commission

Ted writes:

Your idea has a slight hiccup. What happens once the loan is paid off? Once the loan is paid off the lender has no say in whether or not someone has fire insurance. According to the Census's 2001 Residential Financial Survey 40% of all properties are owned outright - and given the demographic structure my guess is the number is higher now. So, you have a huge amount of the population where your enforcement mechanism (the lender) can't work.

Since I can't think of a universal enforcement mechanism that is voluntary, I'm simply going to assume there is a non-trivial portion of the population that doesn't have fire coverage. So, this leads to my objections to the user-fee fire fighting model.

i) What do we in the scenario where a people are trapped in the house and yet the user hasn't paid? I suppose if you are hardcore libertarian you'd say let them die - but that seems morally repugnant to me and I would hope nobody would say that this was appropriate or just. Given our society I'm going to assume that if people's lives are in danger, they are going to save them whether they paid or not. Obviously our society would have the carve out that if people are inside - you are going to save them. Which then leads to bizarre incentives. Let's say a person's house goes on fire while they are inside, they now have an incentive to stay there so the fire department will help them (I'm assuming they will stay in there just long enough before the fire gets so bad they are seriously putting their lives in danger and I'm assuming the fire department would act before it got that bad). Just remember the person didn't pay a small fee to have access to the fire department. The person is clearly a moron, they might think this is a wise strategy. Now, I suppose you could set up a legal mechanism where the fire department can sue them ex-post for the service - but this would not stand up to constitutional muster and would also be a violation of the libertarian creed since a private actor would be taking someone's wealth for a service they didn't consent too.

ii) Taking (i) a bit farther, let's assume an asymmetric information problem. A house goes up in flames - but now the owners aren't the ones that called the fire department and aren't around. How does the fire department know nobody is in there? Simply put, they don't. There very well could be a small child trapped under a fallen ceiling. Again, our society would not let people die because they didn't pay. And since the fire department doesn't know if someone is inside or not - you guessed it, they are going to save the place. The ex-post incentive to put out the fire to assure no one is inside is so large that any ex-ante commitment is implausible. Thus, many people will get their house fires put out.

iii) Let's take even (ii) farther. Now let's say the homeowner just lies to the fire department and tells them someone is trapped inside their home. Once again, they set it out. Now plausibly they could sue someone for damages, but this is just silly. The amount the private fire firm could plausibly extract from the homeowner in a lawsuit is substantially smaller than the value the homeowner would lose from their house going up in flames. Also, someone could easily claim confusion triggered by emotional stress and probably get out of damages - or at least significantly reduced damages would be awarded.

iv) The problem of fire spill-overs is an obvious one. My neighbor may not have paid his fee, but I sure did. I don't want his fire spilling over to me as it spreads since the fire department is not putting it out. Sure, my fire department might show up once it gets to my house, but by then my house is already partially destroyed because my neighbor was an idiot. This also is true in the case of competitive fire departments. If I have a different fire department than my neighbor and the fire spreads to mine from their house there will be a delayed reaction by my fire department to the scene and my property will be damaged. Obviously this doesn't happen with a single fire department. A plausible solution is a central database that alerts neighbors companies so this problem is probably not insurmountable.

v) Finally, taking (iii) a bit farther. Let say my neighbor is an idiot and doesn't contract with a fire department. My fire department may be able to figure this out somehow (since I already pointed out a central database would be necessary to solve iii, so one could argue they could easily figure out if my neighbor had fire insurance). That means my risk is higher due to the greater possibility of higher spill-over. My neighbor's stupidity is posing a higher cost on me.

Unfortunately, morality and spill-over effects seem to make the libertarian ideal difficult. My preferred route is that the government mandates everyone has contracted with a fire department, however, each individual may choose who they pay for this service. This would ensure the benefits of quality and reduced costs brought out by competition, while still overcoming the issues I highlighted.

Peter Nyberg writes:

The only structure I'm familiar with is suburban towns with volunteer fire departments (usually with professional management) paid for by property taxes. In my experience this just works. I assume that objections to this are purely philosophical rather than practical.

Joe in Morgantown writes:

The links tend to talk about VFDs in the past tense. But, even today, most firefighters in the US are with volunteer fire companies.

Floccina writes:

You know as libertarian as I am, Firefighting might be one of things that is so cheap per person that even in the face of gross overspending it is not worth privatizing. I think the same about most roads. Even as inefficient as Gov is, roads are cheaper than cars, drivers and even fuel.

Andy writes:

I think you are misidentifying the problem. Given sufficient population density a variety of fire protection schemes will work - either government provided through taxes, volunteer (which are mostly hybrids), or private.

The problem comes in when dealing with more rural areas which have a lower "income density" due to low population density and generally lower income. In that case it's not likely at all there would be a competitive market for fire protection by private companies simply because there's not enough of an income base to sustain it. A lot of rural parts of the US only have fire protection thanks to a largely volunteer system (which is cheaper) backed up by significant federal, and sometimes state, grants plus donations and perhaps taxes. The particulars vary widely.

So what happens absent that state or federal support? Your scenario breaks down because without some kind of subsidized fire protection, development would grind to a halt in rural areas except for people who don't need mortgages. No fire protection means no fire insurance which means no mortgage.

artk writes:

You missed the real start of private fire fighting. Marcus Crassus in ancient Rome ran the first documented private fire department. The way they operated was they would show up at your property and only after you signed it over to them for a fraction of its value, they would put out the fire.

David writes:

Joel is correct- see parts of Plunder by Steve Greenhut, which is based in part on reporting/editorializing from the Orange County Register on the pay of Orange County Calif. firefighters.If memory serves, staffing is based on union work rules, not need, and ~90% of all calls are for paramedic services, not fires. I suspect that fire depts. are also dispatched for any traffic accident where an injury is reported, even if medical service could be rendered by an ambulance crew and clean up could be performed by a tow truck driver.

tms writes:

I agree. The fire insurance company is the best mechanism for making sure people subscribe to a fire fighting service.

What happens once the loan is paid off?

Yes, some people might have their loan paid off, but that does not mean that they don't have fire insurance.

If they don't have fire insurance, then they still might pay for a fire service.

And if they don't have fire service, the for-profit fire department will probably still respond to calls, but simply charge a one-time fee, that is a multiple of the annual fee. I can't imagine a for profit business, with a reputation to protect, standing idly by while a home goes up in flames.

Firefighting might be one of things that is so cheap per person that even in the face of gross overspending it is not worth privatizing

Really? Why do I keep reading that public sector unions - teachers, police and firefighters included - are bankrupting the United States?

Johna writes:

While many public institutions have private counterparts (schools, medical care, etc.), fire prevention groups should not. Fire departments exist for public good, and should therefore remain public. The privatization of this service would inevitably end in the unnecessary loss of many lives and property. As an earlier commenter stated, there are too many "what if" situations for the privatization of fire departments to work successfully. If neighbors had memberships to different fire companies and the fire spread between houses, there would be significant delay. Moral obligation would (or should) require firefighters to overstep legal boundaries to save lives. I can not honestly believe that a firefighter working for a private company would neglect saving lives for the sake of the dollar.

Public safety is of public concern, and should therefore be paid for with tax dollars. If police stations were privatized, would someone be allowed to be murdered in their own home because they neglected to pay the "membership fee" ? Technically, paying taxes is in itself a "membership fee" of the nation, and therefore, taxpayers should receive public benefits that they've already paid for: firefighters, policeman, roads, public schools, etc.

The problem with your idea is not in technicalities, it is in the principle that citizens should have to pay for every service out of pocket. Taxes ensure that the public gets what we need out of our country. And while your idea for privatizing fire stations would, in fact, lower taxes and the need for them, the cost would just come from somewhere else.

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