MARKET INTERACTION BETWEEN PUBLIC AND PRIVATE GOODS: THE DEMAND FOR FIRE PROTECTION

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Abstract
This paper extends recent empirical work on the demand for public goods by examining market interaction between publiclyprovided and privately-provided goods, for the case of fire protection. A simultaneous equations model, based on the median voter framework, is developed and estimated. The cross-sectional results indicate that homeowners insurance and fireproofing materials are substitutes for public fire protection, since the cross-price elasticities are positive and significant. This evidence indicates that public officials should be prepared to deal with an increase in the demand for fire protection if the prices of private market substitutes rise. In a Post-Proposition 13 world the results suggest that voters can and do seek private alternatives to publicly-provided goods.