Investments in Fire Management: Does Saving Lives Cost Lives?

Abstract

The total cost of structural fires and bushfires in Australia was estimated at around A$18 billion in 2010, or about 1.5 per cent of GDP. This cost includes some A$16 billion devoted to managing the risk. At the same time, Australia's fire fatality rate of 0.6 per 100 000 of population, already low by international standards, has proved resistant to increasing expenditure on fire management and protection. Following a concern that this expenditure might encompass an overinvestment compared with the real risk, this paper examines the regulatory cost of this investment. Since on average poorer people have worse health outcomes, and governments or companies have no alternative but to pass on increased costs or taxes, it is possible to estimate the lives forgone, on account of an increased mortality rate, of any overinvestment. Adapting a model of Keeney (1997) for Australian conditions, we determine the Australian willingness to spend (WTS) for preventing a loss of a life in the fire space to be between A$20 and A$50 million, depending upon how these costs or taxes are imposed upon the population. If we accept, by way of example, the results of an expert elicitation (Ashe and McAneney 2011) to imply an overinvestment in fire prevention and management of the order of A$4.5 billion per annum (2010 dollars), this excess would imply between 90 and 225 extra fatalities annually. These numbers are of the same order as the annual average number of fire fatalities actually experienced. The analysis shows the importance of carefully evaluating the unintended costs of any new safety regulations and particularly in insuring that the costs are at least grosso modo in line with the purported benefits.