Relate these questions and your responses to types of “market failure.” Could local fire departments be...

Relate these questions and your responses to types of “market failure.”

Could local fire departments be privately owned and operated? Describe the likely result if tax money were no longer used to support fire departments?

Expert Solution

Market fails when it does not result in socially efficient outcome. Fire protection is necessarily a public good in the sense that exclusion of one individual house is impossible if protection is provied to several houses. Privately owned good has consumers that have ownership rights so that neighbours cannot share what individual houses are buying. In case of fire protection, if your house is burnt, fire fighters cannot leave neighbour's house in flames as the protection is somehow mutually inclusive. If privately owned, it would not be operated for the above mentioned reasons. Private provision will result in two high a price for fire protection and too few houses proteced against.

If tax money were no longer used to support fire departments, then privately everybody will try to free ride and no fire services will be provided. People have no incentive to pay for a service that cannot excludes others so even if there is a mutual agreement to pay into a fund, to finance fire protection, there will be too limited funds.

Rahul Sunny answered 2 years ago

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