Free Rider Problem as Charity

Economics Political Theory
1

First, I want to bring up the Tennessee house fire where the fire department did not save the house due to an unpaid fee. Recently in a “debate” an “unapolegetic socialist” (as he calls himself) used this as an arguement against me in the case of PDA’s, etc. Well, really shows what he knows because from what I can gather it was the city’s fire department, not a private company.

While the city provides fire service free of charge to its residents, it requires an annual $75 fee for homeowners who live in unincorporated areas of Obion County – which doesn’t have its own fire department.

One would think the “bill me later” sentiment would work here, 1) house would be somewhat saved, and 2) fire department would get their $75, but neither happened. Also, “The city’s mayor told the news station that the fire department can’t survive without the fees and if they make exceptions to the rule, homeowners would not pay the fee.” Again, the “bill me later” idea could work, or a more customer friendly option. They are right though, if they made exceptions no one would pay the fee.

Now, I was just thinking of the free riding problem, because it seems that it just stops there. People pay, others don’t, and there’s an imbalance. In the case of insurance companies it would be in someone’s best interest to have house insurance, car insurance, etc. The insurance companies as PDA’s would serve to best protect their customers, so one insures their property, and the insurance company makes sure they are protected (customer => insurance company => PDA). In the case of the PDA, if they see a problem, are they going to question whether the potential victim of a catastrophe is a customer? It would seem more likely in advancing customer service to provide the best service in hopes of gaining more customers. A PDA is to protect it’s customers in a given area, and it would be it’s best interest to protect those customers associates as well. If you change the perspective of non-payers among PDA one can’t conclude the reasons, but if the PDA’s are appointed by insurance companies then it’s more likely to have one’s property insured (even if your property is not insured and you are “rescued” from a potential catastrophe, there’s no chance of being reimbursed for your loss).

This leads to a view that the free rider problem could be a sense of charity if you view PDA’s in the sense of a competing business, and wanting to out compete other PDA’s - best service at the lowest price. If a PDA let a house burn because it was not it’s customer it does not look as good as a PDA who was able to better serve another customer with the hopes of gaining more customers.

For those who can’t pay by some daily services that PDA’s render this may come off as a form of charity, but on a whole everyone would be more well off, with the idea that tax paid protection uses up more finances than would be on the free market, so with the benefit of not having your finances coerced everyone on the whole has more money and with the idea that private protection would be less, and would want to expand it’s business by attracting more customers with superior service.

Thoughts?

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2

This is a frequent point made in ancap literature. A PDA rep isn’t going to ask for an insurance card from a person being mugged; we should hope he would intervene and then work out payment afterwards. If the victim is a member of the insurance agency, there’s no problem. If not, they can work something out, or the respective insurance agencies, which may already have a procedure for handling this situation. It may become customary for an intervening agent to be owed a certain payment from the victim, thereby giving the agent legal recourse against victims that might avoid payment (as well as provide incentive to intervene in the first place). A PDA may not request any compensation at all, so as to generate goodwill and possibly win the victim over to their agency.

Ditto for fire suppression and medical care. I would be wary of a stateless society where something like EMTALA is not customary.

3

I agree with the above.

Even if the home owners didn’t buy insurance, their is still a profitable trade possible. The fire department has all these idle fire fighting equipment ready anyway. So for them it isn’t really costly to put out the fire. For the home owners, their home is probably worth much more than the cost of putting the fire out.

So instead of letting the house burn down, the homeowners have to pay the full cost of putting the fire out. As a home owner you would then have the choice between: paying a low monthly fire insurance, but if there’s a fire you don’t have to pay the full cost of putting the fire out. Or you don’t pay any insurance, and pay the full cost should there be a fire.

4

what she said.

5

It appears like we might be deviating from your question (which, I believe, is whether the free rider problem may be considered charity).

To answer your question, even if it it, the free rider problem works in a way to subsidize not paying for services. Now, of course, companies can definitely take steps to take these costs into account and solve this problem.

To go slightly off-topic again, I see the Tennessee case as an obvious failure not of the market, but of government. Government expressly forbid the men from saving the house. Companies would not act like that (they would seriously attempt to save the house in order to win some money in repayment). Plus, I’d really hope that neighbors would jump in to get some cash together to pay for the service upfront.

6

I think it has to do with how one views PDA’s and insurance companies. Instead, insurance companies are looking to protect their customers, so PDA’s could actually be contracted through them, and not always the people directly (I think Hoppe goes over this in Private Production of Defense). With this being said, a high percentage of a neighborhood is insured through Progressive (or whoever), and Progressive to protect it’s customers has PDA’s that patrol the area. If a fire starts, the PDA’s will try to alert and have a fire dept come out quickly as possible, because the fire itself may cause a threat to it’s nearby customers (and at the time it could not be known whether an arson is the origin of the fire). The PDA’s are doing their job that they are contracted for by the insurance company, but the PDA does not have to be of the same company. This being said the PDA themselves may pick up customers as well as the insurance company. It’s not like a PDA is only going to protect those specific homes that have said insurance (a robber, arson, etc. are all threats to nearby people/homes).

The main difference is the ones who are insured and not insured. If someone’s home is ruined by some problem and they are not insured, the main difference is they will not get insurance money to fix that problem, but a nearby PDA would try to stop whatever problem from happening that was in progress. So those without insurance may benefit from the PDA’s, but they are not benefiting from insurance, because they receive nothing from those companies to help them with damages.

7

I think the chick over at “Economists Do it With Models” made a similar point that a better fee structure could support private fire fighting services (like the paymelater scheme you mention).

Of course, that is hardly the major problems with PDAs. The biggest concern you should have isn’t when a mercenary army will bill you for your services, but what would stop them from stealing everything you own to begin with. The answer to that question ussually involves the assumption that the PDA is already operating in a competitive market (as if defense services were like corn). That should worry you more than the question.

8

Student, the same exact problem exists for the state: why isn’t the army enslaving us right now? It doesn’t appear to have much competition in the US…

9

You think I am implying that controlling one’s military is not a problem for the state? I’m sure the Roman Republic would tell you that it is certainly possible for the military to overthrow and enslave its “employer” when it finds the reward great enough.

How the state has come to solve the problem over a few thousand years of trial and error is a story we’re still trying to figure out (I am eager to pick up Fukuyama’s Origins of Political Order over winter break to see what he thinks on this subject). But I think one key point to stress is that the state does not literally purchase security services in market setting. Instead they have “merged” this function into their “firm”. They do this because it makes the most financial sense. If the state “rented” military services from some firm, it would be hard for them to switch “suppliers” at any given point in time. As a result, the military services firm could exploit the state (or any customer) later on down the road for more money. To avoid this exploitation, the two firms simply “merge”.

This actually a very similar story to the one Crawford, Klein, and Alchian tell in their 1972 paper on vertical integration, just applied to a new market transaction.

But my point posting in this thread was not to make a case for why PDAs don’t make sense. I just wanted to throw out important questions anyone advocating them should think about. So here is one more before I drop the topic. If markets were the only institution we needed to nagotiate modern life, why would need any firms at all (let alone firms devoted specifically to private defense). which are what Mike Munger called “islands of socialism” in a sea for free makrets?? Why would we not all individually contract with each other for what we need? To fruitfully explore these questions, I recommend checking out Coase’s article on the The Theory of the Firm and his Nobel Lecture as first stops.

http://www.sonoma.edu/users/e/eyler/426/coase1.pdf

Good luck and happy reading over the break!

10

That doesn’t really begin to address Wheylous’ question. Let me rephrase it for you: what stops a large gang of very well-armed people from enslaving others?

Please explain how it would be hard for a state to switch suppliers of military services at any given point in time. Then please explain how a military services firm could exploit said state or anyone else later on down the road for more money. Note that, in order to satisfy this latter request, you’ll need to explain just what you mean by “exploit”.

Do you consider states to be entirely market entities? Why or why not?

At best, you threw out only one important question. At worst, you threw out none at all. So why lie like that?

And why are you running from this thread so quickly? What are you afraid of?

What definition are you using for “markets”? Somehow I think it’s a different one from what most people around here use.

Aren’t firms market phenomena in the sense of individuals voluntarily interacting with one another? I don’t see the point of your question.

11

exactly. Restaurants don’t do credit checks, yet they serve you before you pay.

12

The biggest concern you should have isn’t when a mercenary army will bill you for your services, but what would stop them from stealing everything you own to begin with.

Who’s to grant unchecked legal immunity to said PDA’s? It’s not just whether there’s competition, but there being a monopoly by law, given by the state, working outside the normal civilian jurisdiction.

But I think one key point to stress is that the state does not literally purchase security services in market setting. Instead they have “merged” this function into their “firm”. They do this because it makes the most financial sense. If the state “rented” military services from some firm, it would be hard for them to switch “suppliers” at any given point in time. As a result, the military services firm could exploit the state (or any customer) later on down the road for more money. To avoid this exploitation, the two firms simply “merge”.

  1. Blackwater.

  2. What we see isn’t the merging of two firms, but one extending their “business” into all other industries for their benefit - such being protection. The authority that makes and sets rules, laws, and regulations can make the playing field in their favor, and of course they will have their own military and police that works for the state.