When I talk about public goods in my class, I make it a point to contrast the services of the police department and the fire department. Consider the following definitions:
Excludability: the degree to which consumption of a good or service can be limited to paying customers
Rivalry in consumption: the degree to which my consumption of a particular unit of a good or service prevents others from consuming that same unit
Police protection has low excludability and low rivalry in consumption in a lot of ways. Why is this? Well, if you think about police departments as those people who catch criminals and deter people from doing things that are harmful to others, it’s hard to say that this only benefits people who pay their local taxes properly. Furthermore, rivalry in consumption is also low since it’s not like the fact that I benefit from a criminal not being on the loose hinders your ability to feel safe for the same reason.
Does fire protection share these same characteristics? While most towns don’t choose to operate as such, it certainly is logistically possible to limit fire rescue services to paying customers. Rivalry in consumption is also much higher for fire rescue than for a lot of police services, since if the fire truck is at my house taking care of the fact that I set my dish towel on fire by putting it too close to the gas stove burner, that same truck can’t be putting out the fire at your house.
The low excludablity of police protection means that, if police departments were privately funded, people would likely try to free ride off of each other and wait for their neighbors to pony up the cash for the cops. This means that a privately-funded police department wouldn’t have as many resources as is socially optimal, which is in large part why it makes sense for the government to provide these services and tax to fund them. The same is not true for fire rescue, however- a community could theoretically have a private fire department that comes to your house to put out fires if you pay the going rate, and it wouldn’t lead to gross underutilization of fire services. (It would, however, probably lead to some people foregoing fire services either because they can’t or don’t want to pay, which admittedly has its own problems.)
So why doesn’t this happen more? A simple video, via Mind Your Decisions, sheds some light on the matter:
It’s worth noting that this outcome is efficient, since the person who values the net the most gets it…but it’s not necessarily fair. That said, if demand exceeds supply at a price of zero, is there really a fair way to allocate the resource? It’s way too easy to overlook the fact that, when talking about the fairness (or lack thereof) of markets, the situation where everyone gets what they want at a low price isn’t usually an option. If these guys knew that they could get a high price for the use of their net, they probably would have invested in more than one net. That’s the thing with markets- high prices serve not only as a deterrent to consumers but also as an incentive to producers…and would you rather pay a high price for the net or have it not be available at all? I would take the former option, thanks.