My wife and I just bought our first jointly owned car – when we were negotiating the final details at the car dealership, they tried to use the hard sell to get us to buy “Lojack”:http://www.lojack.com, a vehicle recovery system. We didn’t bite (I don’t like hard sells), but I got to thinking afterwards that buying Lojack would have been an economically irrational contribution to a collective good (which is not to say, of course, that it would have been the wrong thing to do).
The system involves a difficult-to-detect tracer that’s put somewhere in your car – then, if the car is stolen, the police will have a much greater chance of recovering it and catching the thieves. The catch is, of course, that it doesn’t offer any visible deterrent to stealing your car – your only individual benefit is the somewhat dubious reward of getting your vehicle back, perhaps in several pieces after it’s been to the chopshop. However, Lojack offers real collective benefits if it works as the manufacturers claim. If you live in an area where there are lots of Lojack users, then car thieves are likely to be collectively deterred (or caught if they aren’t deterred).
The problem is, of course, that there will be a strong likelihood of underprovision of the collective good. If you live in a neighbourhood where there are lots of other Lojack users, then you have little incentive to buy it yourself – you can free ride on your neighbours. If you live in a neighborhood with few or no Lojack users, you still have little incentive to buy it – the marginal improvement that you make to general neighborhood security is of little value to you, compared to the substantial dollop of cash that you would have to pay to install Lojack. My musings came to an abrupt halt, however, when a Google search revealed that my clever idea had already been “written up”:http://www.nber.org/papers/w5928 several years ago by Ian Ayres and Steven Levitt, who suggest that individual Lojack users get less than 10% of its total social benefits (I note for the record that Levitt not only comes up with fun ideas, which is no more than any decent blogger or punter can do; he really excels in finding unusual data sources to test those ideas). As Ayres and Levitt suggest, if you’re an economically rational actor, you should go instead for the Club, which shifts the risk from your car to your neighbour’s.
{ 39 comments }
asg 11.22.04 at 11:33 pm
When I bought Lojack for my new RAV4 (at the time fully familiar with Levitt’s paper), I asked the salescritter whether there they put a sticker on the exterior warning that the vehicle was Lojacked. The answer, which seemed plausible, was that if thieves knew that the car was Lojacked, they’d tear it apart looking for the chip (which, according to the literature, can be in about 25 different places on the car). I wondered why that itself didn’t constitute a deterrent, but I guess the marginal cost of tearing the car apart for the chip is pretty small.
Josh Ellison 11.22.04 at 11:52 pm
I read the Ayres/Levitt paper for a law & economics course. the real answer for why you can’t put a sticker on your car is that they want your lojacked car to get stolen, so they can catch the thieves. allowing you to put a sticker on there would eliminate the positive externality created by lojack, making it little better than the club from a social utility perspective.
Wren 11.23.04 at 12:02 am
As substantial as the benefits of LoJack are, they are small besides the crime prevention gains afforded by electronic immobilizers. At least according to me. http://casi.ftsc.us/transportcanada.html
However my projected net benefits depend on a mandate from an enlightened government, a very rare beast indeed.
katherine 11.23.04 at 12:04 am
it might reduce your insurance….it does not prevent people from stealing the tires off your car from inside the garage of your own apt building, however.
serial catowner 11.23.04 at 12:23 am
I’ve had a number of cars stolen and I can tell you that finding the car is key to getting it back. If you have any particular reason to want that car back, instead of an insurance payment, Lojack is a good idea. Also, finding the car quickly can save towing and storage charges.
anno-nymous 11.23.04 at 12:43 am
Why don’t insurance companies subsidize Lojack, or at least threaten you with higher rates if you opt out?
Or maybe they do. I dunno.
Jackmormon 11.23.04 at 1:05 am
How much is the initial price?
There’s a limit to my (and I think anyone’s) willingness to contribute a one-time voluntary payment to the collective good. An irrational but principled fifty bucks on a car price is one thing, but two hundred would be another beast entirely.
Cranky Observer 11.23.04 at 1:30 am
> he real answer for why you can’t
> put a sticker on your car is that
> they want your lojacked car to get
> stolen, so they can catch the
> thieves.
Count me as just a mite cynical on that one. Technology has been available for 20 years or more that could easily put an end to car theft, car radio theft, and high-end bike theft. All the car theives should be in jail right now, not to mention the chop-shop owners.
Yet they aren’t, and car theft (as opposed to carjacking) continues to climb in many cities.
That tells me that someone fairly high up the food chain is profiting from the stolen cars, and wants just enough pressure put on the theives to keep them in line but NOT enough to get them to stop.
Cranky
Mark 11.23.04 at 1:34 am
Anno-nymous,
Insurance rates for cars with Lojack are lower than for cars without it. I can’t speak for other parts of the country but living in the largest urban area in a state with one of the highest insurance rates in the country (Providence, RI), Lojack has more than paid for itself in lower insurance rates over the past 3 years on my car.
Doug Broussard 11.23.04 at 1:52 am
Cranky Observer wrote:
Count me as just a mite cynical on that one. Technology has been available for 20 years or more that could easily put an end to car theft, car radio theft, and high-end bike theft.
Ubiquitous or required use of this technology would also mean an end to privacy.
washerdreyer 11.23.04 at 1:57 am
Given his (rightful) reception on this site, it’s somewhat funny that the paper you link to cites John Lott’s gun study.
bza 11.23.04 at 9:17 am
Uh, isn’t the paper in question from 1998? As in, years before Lott’s work lost its legitimacy?
Brett Bellmore 11.23.04 at 12:16 pm
Pay people with Lojack a bounty every time a car thief gets caught thanks to their having it. Given the amount of damage a single car thief can do in a year, it could be a pretty substantial bounty, too.
The best way to deal with externalities is to find some way to internalize them, and a bounty would not only encourage Lojack use, it would encourage Lowjack users to park their cars where they might get stolen, making Lojack a more efficient way of stopping car theft.
Wren 11.23.04 at 12:42 pm
Here’s a few more data points.
Auto insurers make most of their money on the comprehensive part of your policy. Widespread use of immobilizers and/or tracking gizmos could/would eliminate most car theft and the need for theft insurance (in your comprehensive).
Insurance companies (in case you haven’t figured it out from the Marsh mess) are run by “producers” ie underwriters. Claims guys have the job of saying “no”. The third leg of the stool, loss prevention, is the smallest and most ignored. Theft prevention is not a priority.
When your car is stolen, you only receive about 80% of Redbook replacement value of your car. With pain and inconvenience, the consumer ends up paying almost as much as the insurer.
Auto companies have no motivation to make cars harder to steal. The most stolen SUV is the Escalade. It also has one of the most primitive OEM anti-theft systems. Why is that?
FWIW auto theft is not a trivial, isolated crime. Auto theft has the largest economic cost of any crime in the US. In Canada car thefts are usually used in the commission of another crime. In the Northwest, 70%+ cars are stolen by meth addicts. Solving the dysfunctions of auto insurance economics should be more than a finger exercise.
Nicholas Gruen 11.23.04 at 1:04 pm
A naive question. Why is the Lojack difficult to detect. Doesn’t it have to emit radiation to tell people where it is. How come the baddies can’t work out how to detect it?
Brett Bellmore 11.23.04 at 1:25 pm
Because it doesn’t start transmitting until it’s told to, and at that point it’s a little bit late to disable it if you’ve already got the car at the chop shop.
Craig Snoeyenbos 11.23.04 at 2:34 pm
Since car thieves – or the guys that buy hot cars from tweakers – are rational actors, they adapt to LoJack. Getting caught in the chop shop leads to all manner of possible serious charges, so they avoid that by letting the car cool off in an alley somewhere. If the LoJack works the car owner gets it back relatively undamaged and the thieves go back to try another one. If not, it’s off to the choppers. LoJack does benefit the buyer more than one might think.
Cranky Observer 11.23.04 at 2:38 pm
> Ubiquitous or required use of this
> technology would also mean an end
> to privacy.
I am a privacy fanatic myself, but in this case I don’t think so. First, the devices need not transmit until triggered, as with Lojack. Second, even in a city the size of New York or Chicago there can only be so many chop shops and dirty brokers. Monitor the stolen cars for 6 months until you have all the sites mapped, bust them all in one go, and start prosecuting up the chain. New ones might arise but it should be simple to keep that under control.
No, I suspect that there are forces which do not want auto theft to be stopped.
Cranky
Brett Bellmore 11.23.04 at 3:00 pm
That rather assumes that they’re not being moved about, not to mention the political ramifications of letting criminal enterprises continue in operation even after you’ve got the goods on them; The people whose cars were stolen in those six months would be majorly pissed, and with good reason.
Finally, this would essentially kill sales of Lojack, by rendering the system worthless to car owners.
jr 11.23.04 at 3:39 pm
You’re wrong when you say that Lojack confers little or no individual benefit. Lojack lets the cops locate your car immediately, so you get it back fast – often in a few hours and almost always w/in 24 hours – before the joy-riders get tired of it and smash it up, or the chop shop gets started. If your car’s not found w/in 24 hours they refund the purchase price (that’s separate from your insurance recovery, of course). It’s not cheap – $700 – but I get 15% off my comprehensive insurance for it. I’m glad there are social benefits but that’s not why I bought it.
Of course, I’m probably older and richer than most readers of this blog, with a newer car.
And by the way, Ayres/Levitt’s demonstration that Lojack is undersupplied given the societal benefits it confers is not the same as saying that it’s irrational for any given individual to buy it.
Daniel Nolan 11.23.04 at 4:17 pm
Don’t forget the personal utility of vengance. A lot of people get very angry when their cars are stolen, and would often at that point happily pay some reasonable amount in return for the thief getting caught and going to gaol.
Of course, for this to be a reason to buy Lojack, you’d have to be the sort of person who would derive some satisfaction from the thief being caught, and think that the technology increases the chance that the thief, or someone else in the chain who you want caught (e.g. a someone running a chop shop), would be brought in.
You’d also have the satisfaction of knowing that you’d done something significant to cause the thief to be caught. That might be worth something, to at least some people. It needn’t be enough on its own to justify the price, but it could be one consideration among others.
(Disclaimer: I’ve never had a car stolen, and I don’t know whether I’d care too much about what happened to the thief. But there are certainly plenty of people around who wish a lot worse than capture on people who steal their cars.)
abb1 11.23.04 at 5:17 pm
Where there is a problem with free riders (and Lojack, of course is a classical example), there is a clear need for government regulations. Lojack has to be mandated like the safety belts; that’s all there is to it.
Jeremy Osner 11.23.04 at 5:33 pm
Steve Clemons notes that the million-dollar limosine of Juergen Schremp was stolen — it was equipped with a device similar to Lojack but has not yet been recovered.
Ken Houghton 11.23.04 at 5:59 pm
The pricing (noted by jr; I was told slightly more when I declined it a few years ago) is a major issue for those of us (1) not buying a brand new car, (2) living in relatively low-risk areas, and (3) not buying a late-model car that is “favored” by thiefs.
The breakeven cash flows on insurance reduction v. capitalised cost of Lojack didn’t work for me–but I had all three of the other data points available and reviewed.
As a niche product, Lojack should be purchased by those most in need of it. It is supplemental, not primary, insurance. And that appears to be the way it is working in the market as well.
Efficiency, anyone?
Simon Rippon 11.23.04 at 6:04 pm
Here’s a way to internalize those benefits:
Instead of selling the expensive Lojack system, sell Lojack warning stickers for 1/10 of the cost. Warning sticker owners are entered into a lottery, and 1 in 10 of them gets the Lojack system installed in their car.
It’s not worth it for the theives to rip the stickered cars apart looking for the chip if there’s only a 1/10 chance of it being there, but thieves would also rather steal a car that has no chance of having Lojack than one that does, so Lojack sticker owners collectively get the benefits of not having their cars stolen. Their neighbors that didn’t buy the Lojack stickers will get their cars nicked instead.
Kimmitt 11.23.04 at 6:19 pm
Getting caught in the chop shop leads to all manner of possible serious charges, so they avoid that by letting the car cool off in an alley somewhere.
Even this is an externality — it imposes costs on the theives for both Lojack and non-Lojack owners. It’s the vague equivalent to herd immunity.
Jeremy Osner 11.23.04 at 6:23 pm
It imposes costs for the theives of non-Lojack cars but brings benefits only to the owners of Lojack cars; the cars with Lojack will (if all goes according to plan) be retrieved while in their cooling-out alley period.
robbo 11.23.04 at 6:35 pm
Yes, but Simon, what about the thieves who steal the car, put it in an alley overnight, then come back for it the next day if the police haven’t found it? That would simply become the standard practice if everyone put a sticker on their car (if it isn’t becoming the standard already).
History suggests there’s a workable counter play for every seemingly foolproof scheme for eliminating crime.
abb1 11.23.04 at 7:14 pm
History suggests there’s a workable counter play for every seemingly foolproof scheme for eliminating crime.
The counter-play may turn out to be this: leaving the cars alone and stealing something else instead. Abducting little children for ransom, for example.
decon 11.23.04 at 7:28 pm
Lojack doesn’t really help catch car thieves. It only helps catch those in possession of stolen cars. No small difference, as every experienced car thief, prosecutor, and criminal defense attorney knows.
limberwulf 11.23.04 at 7:47 pm
The same collective good argument could be made about gun ownership, and has been many times. Even as a supporter of gun rights I would certainly not want a mandate from the government saying everyone had to have one. Its not likely that lojack would eliminate car theft, even if every car had it. There is always a way around things, including and emp or other chip killer on standby to kill a signal as soon as its activated. There is always a way to break a lock, the key is to make it difficult. Lojack is indeed a good system, but it is not good enough to warrant a forced application, thereby raising the cost on everyone. The problem with collective good practices is that they never perform as well in real life as they do in theory, and you often have a poor cost reward ratio.
Cranky Observer 11.23.04 at 8:37 pm
> Its not likely that lojack would
> eliminate car theft, even if every
> car had it
Again, there simply can’t be that many car theives or networks for selling stolen parts. Particularly with the incredible sophistication and inter-relatedness of components today (not like the 1960s where you could just chop out an ignition system for example), and the fact that every sellable component is marked with a non-removable serial number.
It has to be possible, with a complex but reasonable amount of effort, to find out where these networks are located. Snap up a large percentage of them. And use standard techniques to start working up the chain.
It can be done. It wouldn’t be that hard. It isn’t being done. That tells me something.
Cranky
abb1 11.23.04 at 8:49 pm
It has to be possible, with a complex but reasonable amount of effort, to find out where these networks are located.
Complex? Check your local junk-yard.
Xavier 11.24.04 at 2:29 am
“The counter-play may turn out to be this: leaving the cars alone and stealing something else instead. Abducting little children for ransom, for example.”
Are you suggesting that preventing car theft is bad because it might encourage car thieves to turn to more violent crimes instead? Then maybe we should ban car locks. Car theft would be so easy, no one would bother committing armed robbery.
kbm 11.24.04 at 1:16 pm
“Yes, but Simon, what about the thieves who steal the car, put it in an alley overnight, then come back for it the next day if the police haven’t found it?”
Apparently this is exactly what happens once the smarter car thieves catch on that they are operating in an area where Lojack installations are more common.
The appropriate police response to this behavior, of course, is to stake out the car rather than recover it immediately (with, one would hope, the approval of the car owner.)
Scott D 11.24.04 at 4:59 pm
My recent experience serving on a grand jury (in a US county with the highest percentage of stolen cars per capita) taught me one thing about car theft — it’s not about the parts.
It’s joy-riding or using the vehicle as part of another crime.
The DA told us chop-shops doesn’t exist as they once did.
By the way, there is a federal task force activated here in which units drive around, punch in license plates to a central database, and bust the stolen drivers. Usually these drivers can be linked to recent crimes and/or narcotics.
How low-jack and economic thinking affects this I don’t know, but analysis should draw from the latest trends.
Cheers,
Scott
Joe O 11.24.04 at 6:04 pm
It doesn’t hurt Lojack when people’s cars are stolen. They are more likely to then sell a system to the victim’s friends ,neighbors and relatives. This could be another reason for the lack of stickers.
Butter on Rice 11.25.04 at 3:11 am
I can’t take any of this seriously, because The Club is For Suckers.
You simply hacksaw through the steering wheel, slide out the club, and you’re ready to drive. Big deal, you now need a new steering wheel; enjoy the new car! And hacksaws canalso go through those steel steering wheel security covers, too.
You need engine disabling. But nothing can protect you from towing.
cm 11.25.04 at 9:53 am
butter on rice: A club will not deter a professional or determined thief, but a certain joyrider demographic. That’s something if you own a relatively low-value car that no professional would touch.
At any rate, it makes the theft if only marginally more risky by adding to the time to complete it.
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