Police Services
Our first example is police protection. In Topic 3: The State and its
Origins we noted that when the state is created, police protection
of individual property rights will necessarily be introduced for the
maintainence of social order. While one could imagine groups of
individuals hiring a private police force to protect their interests,
both positive and negative externalities would arise. To the
extent that private police forces capture, fine and jail people who
violate the state law and usurp property rights, individuals who do
not pay for police services will also benefit by the fact that
criminals are taken off the streets. On the opposite side, one would
expect that police services hired by groups of individuals would be
used to take advantage of people not paying for these particular police,
raising the prospect of virtual implicit civil wars breaking out between pairs of
private police forces. The way to avoid these externalities and ensure
that the laws being enforced are those legislated by the on-going political
process within the state is to have a single police force to equitably
enforce state law, with the cost being borne by all individuals in fair
proportions. We would expect that this could be accomplished naturally on
the basis of majority rule. The tax burden will not be shared equally
throughout the state to the extent that there is widespread concern about
inequalities in the income distribution that involve heart-rendering
poverty of certain types of citizens.
Fire Protection
As noted in our previous discussion, major positive externalities will
arise with a system of privately hired fire protection services, with
individuals free-riding off the services hired by their neighbors, whose
paid protectors will tend to fight fires in neighboring properties to prevent
spread to those having paid-for protection. Again, the best way to
avoid this externality is to have a single state-owned and state-run fire
department provide protective services to the whole community. And in a
majority-rule situation, the level of state fire protection would be paid
for by all individuals in the community in fair proportions acceptable to
the majority.
Roads
In a primitive society, roads will be nothing but trails which become
established naturally as people go from place to place. More sophisticated
travel methods will require that land be set aside to make room for the
resulting road-capital constructed and that the resources used for road
construction be paid for by someone in the society. For the persons paying
to receive adedquate compensation, they must collect toll money from those
traveling the roads. In a society with a vast network of roads, most of
which will be actually used quite rarely, the cost of collecting tolls
will be very high, as will be the costs of verifying that payment has been
made in situations where it is more economical to sell the right to use a
road rather than charge a price for each individual passage over it. The
best social policy appears to be one of having the government pay for the
construction and maintenance of all roads except those for which a large
group of users exists that will pay an appropriate price per fast trip along
a road that is significantly better than others in the neighborhood that are
made freely availiable. Private individuals will also find it useful to
pay for the construction of short roads and lanes which they and their
friends and visitors will be the only users.
Bus and Train Services
A somewhat different situation arises with respect to train services and bus
services along roads. Payments for these services can, for the most part,
cover their costs, although situations will arise similar to a non-profitable
monopoly which can be induced to provide services via a social subsidy.
Airport Services
Another set of services of this sort are airport services. For large
communities the povision of services at an airport is a profitable monopoly
requiring useful government regulation. This will not be the case for small
communities, making complete government conrol of unprofitable monopoly a
requirement in this case.
Electricity
The provision of electrical services in most communities is also exclusively
produced by government. Control by government is necessary because the
generation of electricity tends to become cheaper in larger volumes so
a monopoly is natural. Also, it is cheaper to put every demander of
electricity in the community on a single power grid rather than have
the overlap resulting from separate grids for randomly selected users
or groups of users.
The previous topic outlined the costs of monopoly in a free-enterprise
economy noting that the effects of monopoly could be avoided by
appropriate subsidization of production. We now turn to an analysis
of situations where government typically ends up regulating such monopolies
or producing the entire output of the goods and services in question.
For a further analysis of all the above situations we proceed to some test
questions. Think about the issues and have your own answers in mind before
looking at the ones provided.