1 Center for Competitive Government Dr. Simon Hakim, Director Center for Competitive Government The Fox School of Business & Management Temple University

2 POP CONFERENCE OCTOBER 28, 2004 Evaluating Alternative Policies To Combat False Emergency Calls Presented by: Simon Hakim with Erwin A. Blackstone Andrew J. Buck

3 The Balance of Costs & Benefits The cost variables are: The cost variables are: 1)To owners Installation outlays$420,035 Monthly charges$453,773 2)To the Police Department$139,081 Response to false activations Total Cost: $1,012,889

4 B. The Benefit Variables Are : 1 Avoidance of burglaries 1.1 Cost of violent crimes (assault and rape) (assault and rape)$77, Cost of Property stolen Cost to Homeowner Cost to Homeowner.$69, Incomplete burglary Incomplete burglary$60, Demoralization cost Demoralization cost$426,091

5 Benefit Variables (cont) 2 Avoidance of fires Cost to Homeowners Cost to Homeowners Cost to Insurers Cost to Insurers Demoralization Cost: Demoralization Cost: Insurance Discount Insurance Discount Total Benefits : Total Benefits : Net Benefits Net Benefits$22,939,748 $334,075 $334,075 Included in Included in $90,900 $90,900$1,080,905$68,016

6 Benefits of Alarms To Alarm Owner- Burglary To Alarm Owner- Burglary – Deterrence by yard sign – At break-in alarm sound prevents penetration – Once inside the premises-shorter stay – Similar benefits from preventing spread of fire To the Community To the Community – Police save time for securing alarmed property – Displacement/Umbrella effects?

7 Problems With The Current System Efficiency Efficiency –Higher cost to police –Lack of choice to consumers –Alarm activators become criminals –Prices do not reflect actual cost –Price discrimination:  business  residential  schools  religious and chartable facilities  municipal facilities

8 Problems (continued) Equity Equity –Cross subsidization between false activators and non-alarm owners/non–activating owners.

9 Significance of false alarm problem Estimated annual national cost is $1.8 billion; 36 million false alarm activations; 10-20% of patrol officer time spent on responding to false alarms. Estimated annual national cost is $1.8 billion; 36 million false alarm activations; 10-20% of patrol officer time spent on responding to false alarms. If we solve the problem it will add the equivalent of 30,000 officers nationwide. If we solve the problem it will add the equivalent of 30,000 officers nationwide.

10 Can we increase net benefits to the community? Efficiency Efficiency – Reduce number of false activations. – Reduce cost of response. Equity Equity Cross subsidization between false activators and non alarm owners/non-activators.

11 Is response to Alarms a public good? A valid alarm is a public good. A valid alarm is a public good. –Reduce pool of burglars –Deterrence for other burglars –Apprehension-punishment A false alarm is a private good. A false alarm is a private good. –Customer is identified and response is a private service –No others in the community benefit –Benefits foregone–displacing other worthwhile police activities.

12 Alternative 1: Do Nothing Police deliver private service, causing cross subsidization. Police deliver private service, causing 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, thus reducing the effectiveness of alarm. Police treat alarm response at low priority, thus reducing the effectiveness of alarm. Causes congestion on emergency communication systems. Causes congestion on emergency communication systems. Response to other events takes longer. Response to other events takes longer. Registration of systems is bureaucratic, costly and unnecessary. Registration of systems is bureaucratic, costly and unnecessary. Violators are treated as criminals rather than customers. Violators are treated as criminals rather than customers.

13 Alternative 2 Managed Competition Police maintain response Police maintain response Allow private companies to respond Allow private companies to respond Price at cost. No escalating fees, no free response. Charge all targets at cost Price at cost. No escalating fees, no free response. Charge all targets at cost –Commercial –Residential –Public and religious

14 Alternative 2: (Continued) The business of response. Revenues of false alarms should be credited to the police account. The business of response. Revenues of false alarms should be credited to the police account. Registration fees should be eliminated. Fees collected for no service rendered yields unjustified tax on alarm owners. Registration fees should be eliminated. Fees collected for no service rendered yields unjustified tax on alarm owners. Comments Comments The solution is likely to occur in rural/small suburban localities where the market is too small for private firms.

15 Alternative 2 (Continued) Benefits Police act as a business where it is not a public good. Police act as a business where it is not a public good. Introduction of competition improves efficiency, enhances consumer welfare, and stimulates introduction of technology. Introduction of competition improves efficiency, enhances consumer welfare, and stimulates introduction of technology.

16 Alternative 3 Verified Response Police respond only after physical verification Police respond only after physical verification Police respond only to real events. Police respond only to real events. State licensing or private certification of guards and companies. (license guard companies, certify UL) State licensing or private certification of guards and companies. (license guard companies, certify UL) Registration of alarms is unnecessary Registration of alarms is unnecessary

17 Benefits: Competition among responders results in choice of price/quality packages. Competition among responders results in choice of price/quality packages. Faster response by private companies and police Faster response by private companies and police Patrol cars respond faster to other emergencies. Patrol cars respond faster to other emergencies. Less congestion on 911 or on other emergency communication system. Less congestion on 911 or on other emergency communication system. Consumers have greater incentives to adopt video/audio technology to save on response. Consumers have greater incentives to adopt video/audio technology to save on response. Police perform public duties for which they are responsible and trained. Police perform public duties for which they are responsible and trained. Treat alarm activators as customers rather than criminals. Treat alarm activators as customers rather than criminals.

18 Criteria for Success Private Response Private Response –Feasible if in high density area and/or high value establishments/area. –Feasible if bundled with other services: Patrol, vacation services, stationary guard, locking/un-locking buildings. –Police do not offer free response or price response below its own cost. –Police cooperate by raising priority for verified cases.

19 Private Response Evidence –Private response time ranges from 5 to 30 minutes, almost all under 20 minutes. Average police response-40 minutes (our survey; SLC) –The cost of response is less than half that of police. Average cost of police is $50-$60 (our work). –Reduce congestion on 911 and improve police response to other emergencies. –No evidence of misconduct or consumer complaints with respect to private response companies.

20 Conclusions 1. Alarms are beneficial to the community. 2. Under the current system it is inefficient and inequitable for police to respond to false alarms. 3. If, however, police wish to retain some of the false response they must allow others to enter and compete, and they must price at or above their cost. 4. Verified response comes closest to the economic model of competition. It solves the public vs. private good aspect of alarm response.