Tuesday, May 18, 2010

Costs and Benefits of Virtual Federalism

Arnold Kling and Tyler Cowen argue for virtual federalism (VF) to solve the Middle East conflict. Arnold Kling explains
I would like to have a different sovereign, but without having to move. Under virtual federalism (as proposed in the widely-unread Unchecked and Unbalanced), we would unbundle the services that the County provides. I could then contract with another provider for trash collection, snow removal, fire protection, or other services.
My initial thought is that this results in lots of important questions related to geographically-derived economies of scale. If several people have different sovereigns, then you've created a mix match of territory a government has to cover. With trash collection, this isn't a huge deal--workers just has to drive around everywhere, probably with an on board computer, and collect from customers. Kind of like UPS but in reverse.

But the logistics of snow removal get absurd. Trucks would have to lift their plows when they pass an outsider's home, which keep banks of snow that your neighbors have to navigate around. If you live in a cul-de-sac and two guys on either side of the street at the mouth of the dead end get their snow removal from someone far away, and the snow is bad enough, those on the inside get snowed in even though the snow plows have already passed. And since any local government would focus on the areas with the highest concentration of customers (which will probably be the neighborhood nearest the snowplows), those on the inside of the cul-de-sac could wait for a while.

Okay, so you could say that a path's made to link trapped areas with everything else, but how do you handle fires? A fire in one house can spread to another depending on wind. If the fire department for the home on fire is located farther away than the department for the neighbors, you'd get fire fighters arriving to contain (but not put out) the fire while someone might be inside suffocating. It seems remarkably inefficient.

But it still could be optimal--I don't know how much waste fire departments would eliminate in response to competition nor do I know how much people will opt to go for the closer department simply because it's closer (which would mitigate the impact of the first issue). But I suspect that time-sensitive services will be less efficient than than services that are not time-sensitive.

You don't really care when your trash is picked up, as long as it is picked up sometime that day. But the local governments want their trash route to be all in the same general area to makes it cheaper to pick it up. So trash services will be pretty good: they will make recycling easy for you, they take a large variety of trash (furniture, e-waste, yard waste). They know you'd easily change to a farther away government (because you don't really care) and the costs of many people leaving is high relative to the benefit, so they will work hard to keep you.

Time-sensitive services like fire fighting, snow removal, and water pipe repair will get worse because governments know it will be more expensive for you to go to a farther away competitor. If the plows nicks your car, you might let it slide because you're not willing to switch allegiance to a distant competitor where you'd have to wait an extra hour or two while he takes care of people who are close by.

Competition is not immune to waste and I'm not sure if this system has less of it. But VF buys peace in Jerusalem, then I'm sure it's worth it. But for us? Seems cheaper just to move.

No comments: