Property Is Theft
When your neighbor installs
a burglar alarm, thoughtful burglars are encouraged to choose a different
target--like your house, for example. It's rather as if your neighbor
had hired an exterminator to drive all the vermin next door. On the other hand,
if your neighbor installs video cameras that monitor the street in front of
both your houses, he might be doing you a favor. So the spillover effects of
self-protection can be either good or bad.
Consider
the different ways that people self-protect against car theft. Devices like
alarm systems and the "Club" have a social upside: Their proliferation might
make car theft so unprofitable that potential thieves would decide to seek more
useful employment (though, on the other hand, it's possible that they'll seek
employment as, say, arsonists or killers for hire). But those same devices have
a social downside: They encourage thieves to prey more heavily on those who
haven't bought one. From a social viewpoint, if the total number of thefts does
not change, then the expenditure on alarm systems is pure waste.
For a much lower cost, you can install "fake"
self-protection--say, a little blinking red light that looks like it's attached
to an alarm system, or a cheap piece of foam rubber that looks from a distance
like the heavy metal Club. Here again you're imposing a cost on your neighbors:
If these devices become common, the value of the real thing is diluted.
That point was driven home to
me the last time I shopped for a car. Acura offered a security system as
mandatory equipment. Toyota allowed you to buy a car without a security system.
You could then go out and install your own system for considerably less than
what Acura was (implicitly) charging.
But I
decided that Acura's system--even at a much higher price--was the better deal.
Professional car thieves know that the security system is mandatory on
an Acura, and therefore know that my blinking red light is for real. With the
Toyota, even if I do install a real security system, thieves might suspect me
of trying to fool them and smash my windows to find out.
There's another kind of security system,
available only in a few cities. The "Lojack" is a hidden radio transmitter that
can be activated after your car is stolen, to lead police to the thief (or,
better yet, to the chop shop that employs the thief). The transmitter is hidden
randomly within the car, so thieves cannot easily find it and deactivate
it.
The Lojack is completely
hidden. There's no way to look at a car and know whether it has a Lojack
installed. So unlike, say, the Club, a Lojack will never prevent any particular
car from being stolen; it will only increase the chance of its being recovered.
But from a social point of view, the Lojack has the huge advantage of
helping your neighbors rather than hurting them. The Club convinces
thieves to steal someone else's car instead; the Lojack convinces thieves not
to steal.
And it does so with
remarkable effectiveness. Economists Ian Ayres and Steven Levitt have examined
the effects of the Lojack in about a dozen cities over the past 10 years (its
first introduction was in Boston in 1986). Their task wasn't easy, because just
as the prevalence of the Lojack affects auto-theft rates, so auto-theft rates
affect the prevalence of the Lojack--first because consumers buy more security
equipment when theft rates are high, and second because regulators behave
differently when thefts are high.
But after
sorting all this out, Ayres and Levitt found that the Lojack has an
astoundingly large effect on auto-theft rates. It turns out that a 1 percent
increase in Lojack sales can reduce auto-theft rates by 20 percent or more.
What's happening to all those car thieves? Are they moving to other cities, or
are they becoming house burglars, or are they turning into socially useful
citizens? Ayres and Levitt examined these difficult questions also, and their
bottom-line conclusion is that the Lojack really does prevent a lot of
crime, rather than just moving it to other venues.
In fact, although it costs only about $100 a year to have a
Lojack, Ayres and Levitt estimate that each individual Lojack prevents about
$1,500 a year in losses due to theft. In most cases, that $1,500 benefit
accrues not to the Lojack owner, but to strangers.
By the criteria that
economists usually employ, this suggests that Lojacks should be heavily
subsidized, just as visible security systems--like my neighbor's home burglar
alarm or the Club--should be taxed. When you're doing something that makes
strangers better off, you should be encouraged to do more of it.
If we all used the same
insurance company, you might expect that company to supply the appropriate
subsidy. As long as your Lojack reduces the number of insurance claims, the
company should be willing to pay you to install it. But with multiple insurance
companies, that doesn't work so well: A company that insures only 10 percent of
the populace will reap only 10 percent of the Lojack's benefits, and so will
undersubsidize them. Worse yet, large insurance discounts are illegal in many
states.
The media have recently paid
a lot of attention to research on other kinds of self-protection, most notably
the work of John Lott and David Mustard on concealed handguns. But the Lojack
research is in many ways more informative, because the authors were able to do
a thorough job of distinguishing between benefits to the purchaser of a
Lojack and benefits to the community at large. That discrepancy is the sort of
thing that leads markets to fail--in this case by providing too many Clubs and
not enough Lojacks.
