Saturday, January 11, 2014

Private Crime Detection: Euvoluntary?

Generally speaking, economists will happily endorse a normative version of economic efficiency. That is to say that arrangements that provide exactly one dollar's worth of extra benefit for one dollar's extra cost, no less, no more, are hunky-dorky, a-okely-dokely. Of course, that's just generally speaking. A whole lot of the back material of principles texts (and a whole buncha lotta the blogging & op-eds) is devoted to deviations from strict economic efficiency.

Consider firefighters. Anyone with two brain cells to rub together will acknowledge the peril of paying fire brigades by the blaze. Arson is typically hard to detect, so in the probability-weighted calculus of firebuggery, the incentive to watch as the match makes a graceful arc to the floor is higher for a piecework fire department than for a salaried one, all else equal.

Of course, finding out exactly who set a fire is only typically tough, and in the case of arson, the incentive to investigate is disproportionately weak for the politically disenfranchised and disproportionately strong for the well-connected. Though the FBI won't out and out admit that this is the reason they strongly discourage researchers from using arson data in their crime statistics, even a novice Straussian can spot it clear as day. But some sorts of arson investigations do indeed pass the market test: insurance adjustment investigations.

Now, this doesn't mean that the insurance adjuster is some hem-singed Columbo. An adjuster won't spend more on an investigation than a payoff is worth. If the claim is worth $1M, it would be a spectacularly stupid business decision to blow $2M on an investigation. Even a casual observation of the profit margins of the (non-health) insurance industry suggests they're pretty efficient (they get clobbered by railroads, for example). So, not too much, not too little. Publicly-funded investigations? Two dickheads with pressure cookers suspended the Fourth Amendment on a beautiful spring day in Boston last year.

So how about expanding this idea to regular law enforcement? Much like for homeowners' insurance, crime insurance firms would have a pretty strong incentive to help policyholders prevent crime in the first place. And depending on the terms of the contract (something else they have a good incentive to get right), swift justice would be in their narrow self-interest too: lingering investigations cost firms treasure and reputation. Moreover, cases would get closed once the cost of pursuing the bad guy gets too high. The victim would get compensated, and that's that: maybe not justice per se, but at least some closure. If the alternative is the crook just gets away scot free (and we don't even know for sure how many crimes go unreported for reasons related to this), having this option available is better than nothing, right?

By now, if you're like most people, you're having trouble reading through your tears of mirth-rage. Private law enforcement would only benefit the wealthy, right? Because the existing system doesn't already do that, and socialize the costs to boot or anything, right? RIGHT? But the facts of the matter don't seem relevant to the moral intuitions. Law enforcement is a public good, isn't it? Even softcore libertarians admit that. Turning the keys to the coercive arm of society over to private industry turned out abysmally for prisons, so why should we expect better results for crime investigation? Besides, Lloyd's of London will insure whatever the hell you want. You don't see them writing a lot of contracts for muggings. And besides, there's a collective action problem when it comes to the broken windows theory (not to be confused with the broken window fallacy): no single firm has an incentive to police petty crime, thereby leading to a degenerative spiral that leads to yet more crime. Of course, to forecast that result, you've got to ignore a pretty large research project led by Econ Nobel laureate Elinor Ostrom. But we're talking about moral intuition here, not aseptic reasoning.

My guttiwuts tell me that the median voter would laugh off private crime investigation, even though private bounty hunting is pretty well accepted, despite a light dusting of $20 bills on the ground. And I'd wager that it's mostly grounded in the impression of a BATNA disparity problem.

What do you think, friends? Would you be comfortable with Pinkertons pounding the pavement for perpetrators? Why or why not?

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Do you have suggestions on where we could find more examples of this phenomenon?