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Sunday, October 17, 2010

Protection Fees and Public Services: Potential Consequences

A few weeks ago, the Cranick family of Olbion County, TN watched as their house burned to the ground. According to Timothy Cranick, son of Gene Cranick, his burning of trash in the front yard of their home ultimately led to the fire. After the flames had become uncontrollable, Gene Cranick called 911. Eventually, it was revealed to him that the fire department would not be coming out to assist his plight.

Mr. Cranick had failed to pay a $75 fire protection fee, an added expense due to the location of their house. Since the family home was along the rural outskirts of the county, the South Fulton Fire Department requires the fee in order to finance the activities.

However, when the flames spread to Cranick's next-door neighbor's property, the fire department responded, spraying the line between the homes in order to control the fire so as to avoid the neighbor's property catching afire as well. As for the Cranicks, the firemen on location were ordered to ignore the property since they had not paid their fee.

As it were, both the Cranicks and their neighbors offered to pay the fee on the spot, Gene Cranick later offering that he had simply forgotten to pay the $75 this year. Some may argue that this free riding behavior substantiates the position of the fire department and the decision not to provide assistance. However, Cranick had paid the protection fee before, and he felt that the label of "free-rider" was unwarranted. The fee had simply slipped his mind, and now he acknowledged that he must pay the consequences.

I felt from the moment that I had heard this story that this was a potent example of the ins and outs of Public Finance and all of the gray areas as a result of public policy. If one accepts the notion that the necessary fee had not been paid and therefore the fire department was justified in their actions, what happens if other similar services follow suit? If security protection receives a call about a domestic dispute and a case of breaking and entering, should they as well not respond unless the neighbor gets involved? Or maybe they should just wait until the burglar is finished with the house and family, then arrest them? On the other hand, if the protection fee helps cover expenses beyond those covered by taxes, can any citizen that lives outside the "coverage line" justifiably fail to pay the fees? A potential conclusion from any similar situation may be that no citizens ever pay the fee since they know the fire department will come rescue them regardless.

Although I personally do acknowledge the necessity of paying required fees for any particular service, I find it hard to accept the notion that allowing a home worth tens if not hundreds of thousands of dollars to burn to the ground and sacrificing the lives of their family pets is worth the public example, both economically and politically, made of the Cranicks and their neglect of payment. Would it truly affect the overall community in a severe and adverse fashion if payment were accepted at the scene of the crime as opposed to prior?

Of course, as we have discussed, free rider behavior is to be expected. Public and club goods both reveal some of the issues revolving around market failure and expected government involvement. But if one takes an oath "to protect the lives and property of its citizens, and provide good public relations through fire safety education to all businesses and schools"(SFFD online), how much justification is necessary to support such actions as found in this case, and what are the economic ramifications of either assisting families in need and billing after the fact or holding steadfast to the department's convictions and allowing a home to burn to ash in order to portray the consequences of failing to pay the protection fees? In the end, would it be better to apply subscription fees like the one seen here to all services or should taxes prove sufficient to cover all citizens, no matter the cost?





Yes, Tim I agree with your point. How far would it go if similar services follow suit? The fact that the fire department did not put out the fire at the Cranick’s house but did so at the neighbors’ house that paid the fee for the year justifies this point. However, I am not sure if this is an example of free rider behavior though, since Mr. Cranick had forgotten to pay his fee of $75 for the year yet has paid it for every other year. I could see it as being free rider behavior if he never paid the fee before, but he paid it before.

Furthermore, I would like to follow up on your point regarding the gray area in public policy which is an example of inefficiency. For example, what if there was a break-in at a home and the robber had hurt the victim badly to the point where an ambulance was needed to help the victim. However, the ambulance would not take him/her because they have not paid their fee for the year and the person dies as a result. Both parties are worse off in this case. Efficiency is when both parties are best off i.e. pareto optimality. Still, if they would have helped the victim in my example their still would be inefficiency because the fee was not paid that is associated with the running of the ambulances. Therefore, I believe free rider behavior is a prime example of inefficiency.
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