Revisiting fire protection as a club good

Club goods are non-rival (one person’s use of the good doesn't diminish the amount of the good that is available for other peoples' use) and excludable (a person can be prevented from using or benefiting from the service). I've made the case that theoretically, fire protection could be a club good (see here). There is even some evidence (see that same post) that fire protection could have been a club good historically in New Zealand. There were also stories from other countries on the same point. For example, see this from the Zurich Insurance magazine:

Despite some reciprocal arrangements, firefighting units would ignore burning buildings once discovered it was not covered by their insurance company.

However, it turns out that the stories about London firefighters ignoring burning buildings that were not covered by their insurance company may have been false. See this recent YouTube video by Tom Scott:

That doesn't necessarily mean that the stories about New Zealand firefighters only fighting fires in buildings covered by insurance companies are false. Only that it seems likely that the similar stories about London firefighters are untrue.

So, perhaps fire protection has never been a club good, even though theoretically it could be.

Read more:

• Why fire protection is (or was) a club good
• Fire protection as a private good, rather than a club good or public good

Fire protection as a private good, rather than a club good or public good

Two years ago, I wrote a post entitled "Why fire protection is (or was) a club good":

Some goods or services that are categorised as club goods may be contentious. For instance, according to the table fire protection is a club good - it is non-rival and excludable. Provided there aren't large numbers of fires, if the fire service attends one fire, that doesn't reduce the fire protection available to everyone else... So, fire protection is non-rival. Is fire protection excludable? In theory, yes. People can be prevented from benefiting from fire protection. Say there was some sort of fire service levy, and the fire service decided to only respond to fires at homes or businesses that were fully paid up.

Although my earlier post made the case that firefighting could be a club good, public firefighting is usually a public good - a good that is non-rival (one person’s use of the good doesn't diminish the amount of the good that is available for other peoples' use) and non-excludable (a person can't be prevented from using or benefiting from the service). However, now it turns out that some fire protection may be a private good - a good that is rival and excludable. According to this article from the AFP:

Kris Brandini and his crew had just returned from four intense, non-stop days battling fires in western Los Angeles.

They dashed to the neighborhood where wealthy residents like Arnold Schwarzenegger were fleeing their homes, then to the inferno that threatened the Ronald Reagan Presidential Library, then back again.

But unlike state firefighters, Brandini was not concerned with protecting most of the exclusive residences lining these valleys.

He and his team are private firefighters.

"I only protect the houses that are on my list," he told AFP. "I don't just go there randomly -- that's the difference between me and the state firefighters.

"They go out and protect every house. I protect the houses that are actually enrolled in the program."

If private firefighters will only protect houses that "are actually enrolled in the program", then that makes private fire protection an excludable good. Of course, private firefighting is excludable on the basis of price - not everyone can afford to pay for their own private firefighters. It's not time to do away with public firefighters just yet, because I don't think we would be willing as a society to price some people out of the market for receiving fire protection.

Unlike public firefighting, private firefighting is also a rival good, since there are only a limited number of houses that a private firefighter can protect (so, if they are protection House A, they may not have enough time or resources to also protect House B). However, in the case of large wildfires like those in the AFP article, even public firefighting becomes a rival good, since public firefighters also can't be in more than one place at a time. A good that is non-excludable but rival is a common resource.

That makes firefighting an interesting case study for my ECONS102 class - it is a good that can be characterised as all four classes of good - private good, public good, common resource, or club good - depending on the circumstances.

[HT: Marginal Revolution]

Why fire protection is (or was) a club good

Goods and services can be categorised on two dimensions: (1) whether they are rival, or non-rival; and (2) whether they are excludable, or non-excludable. Goods and services are rival if one person’s use of the good diminishes the amount of the good that is available for other peoples' use. Most goods and services that we purchase are rival. In contrast, non-rival goods are those where one person using them doesn’t reduce the amount of the good that is available for everyone else. Listening to the radio is a non-rival good, since if one person listens, that doesn't reduce the number of other people who can also listen.

Goods and services are excludable if a person can be prevented from using or benefiting from them. In other words, there is some way to exclude people from using the good. Often (but not always), the exclusion mechanism is a price - to use the good or service you must pay the price. In contrast, non-excludable goods are available to everyone if they are available to anyone - there isn't a way of excluding people from using or benefiting from the good or service. A fireworks display is non-excludable. If you let off fireworks, you can't easily prevent other people from seeing them.

Based on those two dimensions, there are four types of goods as laid out in the table below.

I want to focus this post on club goods - goods (or services) that are non-rival and excludable. With club goods, often the exclusion mechanism is a price - you have to pay the price in order to be a part of the club (and receive the benefits of club membership).

Some goods or services that are categorised as club goods may be contentious. For instance, according to the table fire protection is a club good - it is non-rival and excludable. Provided there aren't large numbers of fires, if the fire service attends one fire, that doesn't reduce the fire protection available to everyone else [*]. So, fire protection is non-rival. Is fire protection excludable? In theory, yes. People can be prevented from benefiting from fire protection. Say there was some sort of fire service levy, and the fire service decided to only respond to fires at homes or businesses that were fully paid up. For the same reason, tertiary education is also in many cases a club good. [**]

I always thought that fire protection as a club good was purely a theoretical case, but this recent Mac Mckenna article notes:

Since 1906 the Fire Service has been universally available to all New Zealanders. Prior to then, the Fire Service was run by insurance companies to mitigate loss. Firefighters would only respond to save houses which had a red rock outside showing the owners had fire insurance cover.

I was a bit surprised by this piece of history, and I haven't been able to confirm it from another source. But it does demonstrate how fire protection at one point was excludable in more than just the theoretical sense, and therefore it was at that time a genuine club good.

However, in practice the government chooses not to exclude any home or business from fire protection, making it non-excludable, and therefore a public good. Of course, non-excludability comes with problems such as free riding (where a person benefits from the good or service without paying for it). As Mckenna notes, by funding the Fire Service by levying only those who take out insurance, the insured will be subsidising the free-riders who choose not to take out insurance.

*****

[*] Of course, in a large-scale disaster, or in summer when there are large forest or bush fires burning, this may not be true.

[**] Tertiary education is a club good provided it is non-rival. For most university and polytechnic courses, this is the case. However, some courses have limited spaces and in the case of those courses tertiary education is a private good (rival and excludable).