11

Center for Competitive Government

Dr. Simon Hakim, DirectorDr. Simon Hakim, Director

Center for Competitive GovernmentCenter for Competitive Government

The Fox School of Business & The Fox School of Business & ManagementManagement

Temple UniversityTemple University

E-mail: simonhakim@temple.edu

http://www.sbm.temple.edu/ccg/

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POP CONFERENCEPOP CONFERENCEOCTOBER 28, 2004OCTOBER 28, 2004

Evaluating Alternative PoliciesEvaluating Alternative Policies

To Combat False Emergency Calls To Combat False Emergency Calls

Presented by:Presented by: Simon HakimSimon Hakimwithwith

Erwin A. BlackstoneErwin A. Blackstone

Andrew J. BuckAndrew J. Buck

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The Balance of Costs & The Balance of Costs & BenefitsBenefits

The cost variables areThe cost variables are::1)1) To ownersTo owners

Installation outlaysInstallation outlays $420,035$420,035

Monthly chargesMonthly charges$453,773$453,773

2)2) To the Police DepartmentTo the Police Department$139,081$139,081

Response to false activationsResponse to false activations

Total Cost:Total Cost: $ $1,012,8891,012,889

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B. The Benefit Variables AreB. The Benefit Variables Are::

1 1 Avoidance of burglariesAvoidance of burglaries

1.1 Cost of violent crimes1.1 Cost of violent crimes

(assault and rape)(assault and rape)$77,624$77,624

1.2 Cost of Property stolen1.2 Cost of Property stolen

1.2.11.2.1 Cost to Homeowner. Cost to Homeowner. $69,012$69,012

1.2.21.2.2 Incomplete burglary Incomplete burglary $60,264$60,264

1.2.3 1.2.3 Demoralization cost Demoralization cost $426,091$426,091

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Benefit Variables Benefit Variables (cont)(cont)

2 2 Avoidance of firesAvoidance of fires

Cost to HomeownersCost to Homeowners

Cost to InsurersCost to Insurers

Demoralization Cost:Demoralization Cost:

Insurance DiscountInsurance Discount

Total BenefitsTotal Benefits::

Net BenefitsNet Benefits

$22,939,748$22,939,748

$334,075$334,075

Included in 1.2.3Included in 1.2.3

$90,900$90,900

$1,080,905$1,080,905

$68,016$68,016

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BenefitsBenefits ofof AlarmsAlarms

To Alarm Owner- BurglaryTo Alarm Owner- Burglary– Deterrence by yard signDeterrence by yard sign– At break-in alarm sound prevents penetrationAt break-in alarm sound prevents penetration– Once inside the premises-shorter stayOnce inside the premises-shorter stay– Similar benefits from preventing spread of fireSimilar benefits from preventing spread of fire

To the CommunityTo the Community– Police save time for securing alarmed Police save time for securing alarmed propertyproperty– Displacement/Umbrella effects?Displacement/Umbrella effects?

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Problems With The Current Problems With The Current SystemSystem

EfficiencyEfficiency– Higher cost to policeHigher cost to police– Lack of choice to consumersLack of choice to consumers– Alarm activators become criminals Alarm activators become criminals – Prices do not reflect actual costPrices do not reflect actual cost– Price discrimination: Price discrimination:

businessbusiness residentialresidential schoolsschools religious and chartable facilitiesreligious and chartable facilities municipal facilitiesmunicipal facilities

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ProblemsProblems((continued)continued)

EquityEquity– Cross subsidization between false Cross subsidization between false

activators and non-alarm owners/non–activators and non-alarm owners/non–activating owners.activating owners.

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Significance of false Significance of false alarm problemalarm problem

Estimated annual national cost is $1.8 Estimated annual national cost is $1.8 billion; 36 million false alarm activations; billion; 36 million false alarm activations; 10-20% of patrol officer time spent on 10-20% of patrol officer time spent on responding to false alarmsresponding to false alarms..

If we solve the problem it will add the If we solve the problem it will add the equivalent of 30,000 officers nationwide.equivalent of 30,000 officers nationwide.

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Can we increase net benefits Can we increase net benefits to the community?to the community?

EfficiencyEfficiency– Reduce number of false activations.Reduce number of false activations.– Reduce cost of response.Reduce cost of response.

EquityEquityCross subsidization between false Cross subsidization between false activators activators

and non alarm owners/non-activators.and non alarm owners/non-activators.

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Is response to AlarmsIs response to Alarmsa public good?a public good?

A valid alarm is a public good.A valid alarm is a public good.– Reduce pool of burglarsReduce pool of burglars– Deterrence for other burglarsDeterrence for other burglars– Apprehension-punishmentApprehension-punishment

A false alarm is a private good.A false alarm is a private good.– Customer is identified and response is a Customer is identified and response is a

private serviceprivate service– No others in the community benefitNo others in the community benefit– Benefits foregone–displacing other worthwhile Benefits foregone–displacing other worthwhile

police activities.police activities.

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Alternative 1: Do NothingAlternative 1: Do Nothing Police deliver private service, causing Police deliver private service, causing

cross subsidization.cross subsidization. Pricing of response is not based on cost.Pricing of response is not based on cost. Police treat alarm response at low priority, Police treat alarm response at low priority,

thus reducing the effectiveness of alarm.thus reducing the effectiveness of alarm. Causes congestion on emergency Causes congestion on emergency

communication systems.communication systems. Response to other events takes longer.Response to other events takes longer. Registration of systems is bureaucratic, Registration of systems is bureaucratic,

costly and unnecessary.costly and unnecessary. Violators are treated as criminals rather Violators are treated as criminals rather

than customers.than customers.

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Alternative 2Alternative 2Managed CompetitionManaged Competition

Police maintain responsePolice maintain response Allow private companies to respondAllow private companies to respond Price at cost. No escalating fees, no Price at cost. No escalating fees, no

free response. Charge all targets at free response. Charge all targets at cost cost – CommercialCommercial– ResidentialResidential– Public and religiousPublic and religious

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Alternative 2: Alternative 2: (Continued)(Continued)

The business of response. Revenues of The business of response. Revenues of false alarms should be credited to the false alarms should be credited to the police account.police account.

Registration fees should be eliminated. Registration fees should be eliminated. Fees collected for no service rendered Fees collected for no service rendered yields unjustified tax on alarm owners.yields unjustified tax on alarm owners.

CommentsCommentsThe solution is likely to occur in rural/small The solution is likely to occur in rural/small suburban localities where the market is suburban localities where the market is too small for private firms.too small for private firms.

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Alternative 2 Alternative 2 (Continued)(Continued)

BenefitsBenefits Police act as a business where it is Police act as a business where it is

not a public good.not a public good.

Introduction of competition improves Introduction of competition improves efficiency, enhances consumer efficiency, enhances consumer welfare, and stimulates introduction welfare, and stimulates introduction of technology.of technology.

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Alternative 3 Alternative 3 Verified ResponseVerified Response

Police respond only after physical Police respond only after physical verificationverification

Police respond only to real events.Police respond only to real events. State licensing or private State licensing or private

certification of guards and certification of guards and companies . (license guard companies . (license guard companies, certify UL)companies, certify UL)

Registration of alarms is Registration of alarms is unnecessaryunnecessary

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Benefits:Benefits:

Competition among responders results in choice Competition among responders results in choice of price/quality packages.of price/quality packages.

Faster response by private companies and Faster response by private companies and policepolice

Patrol cars respond faster to other emergencies.Patrol cars respond faster to other emergencies. Less congestion on 911 or on other emergency Less congestion on 911 or on other emergency

communication system.communication system. Consumers have greater incentives to adopt Consumers have greater incentives to adopt

video/audio technology to save on response.video/audio technology to save on response. Police perform public duties for which they are Police perform public duties for which they are

responsible and trained.responsible and trained. Treat alarm activators as customers rather than Treat alarm activators as customers rather than

criminals.criminals.

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Criteria for SuccessCriteria for Success

Private ResponsePrivate Response

– Feasible if in high density area and/or high Feasible if in high density area and/or high value establishments/area.value establishments/area.

– Feasible if bundled with other services: Patrol, Feasible if bundled with other services: Patrol, vacation services, stationary guard, locking/un-vacation services, stationary guard, locking/un-locking buildings.locking buildings.

– Police do not offer free response or price Police do not offer free response or price response below its own cost.response below its own cost.

– Police cooperate by raising priority for verified Police cooperate by raising priority for verified cases.cases.

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Private ResponsePrivate ResponseEvidenceEvidence

– Private response time ranges from 5 to 30 Private response time ranges from 5 to 30 minutes, almost all under 20 minutes. minutes, almost all under 20 minutes. Average police response-40 minutes (our Average police response-40 minutes (our survey; SLC)survey; SLC)

– The cost of response is less than half that of The cost of response is less than half that of police. Average cost of police is $50-$60 police. Average cost of police is $50-$60 (our work).(our work).

– Reduce congestion on 911 and improve Reduce congestion on 911 and improve police response to other emergencies.police response to other emergencies.

– No evidence of misconduct or consumer No evidence of misconduct or consumer complaints with respect to private response complaints with respect to private response companies.companies.

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ConclusionsConclusions

1.1. Alarms are beneficial to the community.Alarms are beneficial to the community.2.2. Under the current system it is inefficient Under the current system it is inefficient

andand inequitable for police to respond to inequitable for police to respond to false alarms.false alarms.

3.3. If, however, police wish to retain some of If, however, police wish to retain some of the false response they must allow others the false response they must allow others to enter and compete, and they must to enter and compete, and they must price at or above their cost.price at or above their cost.

4.4. Verified response comes closest to the Verified response comes closest to the economic model of competition. It solves economic model of competition. It solves the public vs. private good aspect of the public vs. private good aspect of alarm response.alarm response.