Externalizing security costs when the price is zero

Here’s a fact that likely won’t surprise you: Walmart is a heavy user of police resources. Some police departments aren’t happy about it:

…Robert Rohloff, a 34-year police veteran who has to worry about staffing, budgets, and patrolling the busiest commercial district in Tulsa, says there’s nothing funny about Walmart’s impact on public safety. He can’t believe, he says, that a multibillion-dollar corporation isn’t doing more to stop crime. Instead, he says, it offloads the job to the police at taxpayers’ expense. “It’s ridiculous—we are talking about the biggest retailer in the world,” says Rohloff. “I may have half my squad there for hours.”

The unintentional twist is that with regard to crime, most firms and most people “offload the job to the police at taxpayers’ expense” to some degree or another. The problem the article identifies is the very great degree to which Walmart does it. Around 15 years ago Walmart scaled back on staff, intentionally saving money and unintentionally creating an environment more conducive to misdemeanor.

This is a classic problem with zero-price public services: there’s no built-in incentive not to overuse them. Until now retailers have found it most profitable to internalize some of the costs of their own security, estimating the amount they pay deters a greater amount of loss. Walmart has a different calculation, is willing to go minimal on security knowing it can externalize the costs, and is therefore guilty of responding to incentives and taking the policy toward its logical conclusion.

Perhaps, in an abstract way, they should shoulder more of the burden. But existing policy allows for this, so they’re well within their legal rights, and just try to come up with another policy that would pass court challenges that wouldn’t lead to other undesirable consequences, like mom-and-pop stores who don’t have deep pockets having to pay extra. What’s the cut-off?

(There is one possible out, as the article mentions the town of Beech Grove, Indiana, declaring Walmart a public nuisance. This would mean a $2500 fine for every police call. This forced the local Walmart to internalize some of its security costs, but the fact that this is the only instance leads me to believe it wouldn’t be employed on a large scale. I lack the legal background to say more about it; all I can see is the rarity of the measure.)

The takeaway points, none of which are surprising:

  • People (and firms) respond to incentives.
  • Firms face different cost structures.
  • Zero-price resources can be overused.

Koyama on Roman Empire economics

Mark Koyama has just written a great piece about Roman Empire historiography. Specifically, about how historians misunderstand the economic aspects of the Roman Empire, leading them to make erroneous conclusions about the cause of its decline. You can find his piece here.

One of Bryan Caplan’s points in The Myth of the Rational Voter is that what voters think about economics is important because so many questions in politics are or affect economic issues. A similar theme holds here, mutatis mutandis. I also see it in anthropology/archaeology. There are a great many fields of study where economics has explanatory power, but more often than not the people in these fields simply aren’t prepared to use it properly. For example I enjoyed Georges Lefebvre’s French Revolution books for the wealth of historical information, but his Marxist interpretation seemed close, but no cigar.

This is important because our framework for understanding the past reflects our framework for understanding the present. The worse we do with one, the worse we’ll do with the other.