Cost of Fire: Economic Issues of Fire Prevention and Firefighting

The total cost of fire in the United States, based on the NFPA's latest annual report, estimates $328 billion in 2010, or 2.2% of U.S. gross domestic product. Most of this isn't fire loss, but money we spend to avoid bigger losses. Some of it isn't money that changes hands, but dollar equivalents for important activities or fire impacts. Only one dollar in seven of total cost goes to some type of loss.

Numbers like these suggest several questions:

  • Are we spending too much on safety or too little?
  • Would we be better off on balance if we spent more on prevention? If so, what kinds? 
  • Are there important costs or losses not included in our formula?

You can't answer the first question with total cost numbers. The just-right position on fire-safety spending occurs when spending one more dollar will reduce losses by less than a dollar while spending one less dollar will increase losses by more than a dollar. Economists call this elasticity and look at marginal changes rather than overall totals. The just-right balance is not necessarily achieved by spending the same amount on safety costs and losses.

Theoretically, better information about the costs of fire should stimulate the adoption of prevention technologies and programs that reduce fire risk. In the real world, however, this calculus is not easy to apply.

One reason is many of the numbers are hard to nail down and many important effects arise indirectly. For example, our estimates of fire-related costs in new construction are based on a highly simplified review.

Also, even though we include many indirect or long-term costs—from ongoing medical care to pain and suffering to missed work, business interruption and closed businesses—there are always other effects—more indirect and even harder to measure but no less relevant. An obvious example is fire effects on the environment.

A second difficulty is that not all the costs of fire are borne by the parties making the decisions. My decisions are based on the costs and benefits I experience, which may be quite different from yours. If the costs of prevention fall on one group while the benefits fall on another, decision-making may not benefit all of society. That places special importance on codes and standards to take account of the big picture and identify appropriate prevention measures.

Any prevention program needs to be assessed in terms of costs and benefits. This isn't a simple matter. Assumptions need to make up for incomplete data, and philosophical assumptions are needed to decide which costs and benefits are relevant. Differences in philosophy translate into arguments over analysis.

Even so, we owe it to ourselves to attempt a fair assessment so we know we're achieving the greatest safety at the lowest cost.

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