On Wednesday, August 28 the Virginia State Police raided 311 7th Street SW, just across the street from my house, to execute a search warrant. The police force arrived with an armored vehicle, and dressed in full tactical gear, and neighbors were outraged and scared by their use of loud flashbang grenades, and assault rifles. The police raid is an example of a public good because police protection is both non-excludable and non-rivalrous in consumption.
In this case, however, the use of this public good, the state police force, resulted in a negative production externality felt by residents of neighboring homes; the raid imposed adverse effects on neighbors, without compensating them for the cost of these effects. The social marginal cost of the raid was higher than the private marginal cost due to the marginal damage that the raid created, which caused a loss in welfare that can be seen in the dead-weight-loss on the graph below. In order to achieve social efficiency, the state police must account for the cost of the negative neighborhood effects, which would move q* → qae.
I am pleased to say that I was not home while the raid took place, so I did not have to experience these traumatic externalities.
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