Economics @ ITT

Firefighters Let House Burn Because Owner Didn’t Pay $75 Fee

Posted in economics, Policy Issues by ittecon on October 5, 2010

A homeowner in Tennessee did not pay his fire insurance—insurance to pay for the service of extinguishing a fire should his house catch fire—, so the firefighters stodo and watched as his house burned, despite his pleas to  pay “whatever  it takes” to extinguish the flames.

Is this story an example of the need for social goods, or a testimate to private good? Clearly, this is a showcase for market failure. It is also relates to the policies undertaken by the insurance industry to exempt people from coverage due to a pre-existing condition. In this case, the house was on fire and the requisite $75 premium had not been paid.

I’d like to understand the pricing model of the fire department. On the one hand, fire protection was offered as a subscription service, but on the other hand the property owner had offered to remunerate the department. Given the situation, the fire department could have more than covered their marginal costs, even extracting some monopoly profits in the process. This did not happen, so what was happening?