Economics of the Fire Service

Readers Question: Why the fire service is a public domain and how is the fire service a merit good

I think you mean why is the Fire Service a public good?

A public good has 2 aspects.

  1. Non rivalry – Once consumed doesn’t reduce the amount available to others
  2. Non excludability – Once it is provided you can’t stop anybody using from it.

In a free market public goods are often not provided because there is difficulty getting everyone to pay for it due to the free rider problem

The fire service shares some aspects of a public good. If the fire brigade put out a fire, they can still go to another fire. Once you have instituted a fire service, they are prepared to put out anybody’s fire. When you dial 999 and ask for Fire, you don’t get asked “but, have you paid your annual fire payment”. They just come and are financed out of government taxation.

However, the fire service is not a pure public good. There is a limit to how many fires they can put out at a time. Forest fires may stretch the fire service and they may not be able to respond to all fires. A pure public good would not have any element of rivalry.

Note: the first fire services were private enterprises, like a few in London.

Fire – Merit Good?

A merit good is a good where benefits are underestimated by the  user. An example may be fire prevention. e.g. the cost of having a smoke alarm is pretty limited compared to the potential benefits. However, some people may not bother having a smoke alarm because they forget benefits.

Also, having a smoke alarm has positive externalities because if your house burns down it may lead to a fire elsewhere. Therefore, preventing fires has positive externalities to the rest of society