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.