The economics of New Year’s fireworks revealed
I LOVE fireworks. I love fireworks partly for the same reason I love casinos: like a moth to the flame, I’m bedazzled by all the bright, sparkly lights. But unlike casinos, where you get fleeced as the price of your enjoyment, firework displays – in addition to being really pretty – deliver society some of the best rates of return around.
That’s because fireworks are a classic example of what economists call a “public good”.
Any right-minded business person should be extremely reluctant to bankroll a fireworks display.
It’s a general principal of life that people won’t pay for something they can get for free.
The instinct to “free ride” is natural within all of us. Open-air concerts are another example. I once spent a lovely summer evening sitting on a large rock outside the open air concert area in Central Park, New York listening to a Ben Lee concert. The best $100 I never spent. Not as good as watching, but a pretty good free ride.
Fireworks are like open air concerts because it is very hard to prevent people from seeing them.
They are what economists call “non-excludable”. Sure, you could string a rope in a 5 kilometre radius around the fireworks and charge people to enter.But even then, there’s likely to be some vantage point where you could watch for free.
So when it comes to fireworks, local governments step in to provide a valued public good that the private sector would otherwise fail to deliver.
Watched by millions, in person and onscreen, fireworks displays directly boost tourism both directly and indirectly by boosting our international reputation as a pretty awesome place to live and visit.
Another way to think about the value firework displays create is to ask yourself how much would you have paid to see last night’s display?
I reckon I’d be prepared to pay about $2 to watch it on TV, and $15 in person.
Even if every Australian were only prepared to pay $2 each for a New Year’s firework display, with 23 million Aussies, that’s $46 million we’d be prepared to pay.
Instead we paid only $7 million for the Sydney fireworks. And if we’re accurate, that was paid for by Sydney City Council rate payers (cheers for that guys).
Sure, some heartless souls wouldn’t pay a jot. But some people would be prepared to pay much more. On average, I think it’s fair to say we value firework displays positively.
Other major examples of such “public goods”, that only governments can provide, are public infrastructure, the knowledge created by some government-sponsored research and education and national defence and policing.
As a society, we are all safer when a criminal is captured. So who should pay? We all should. And we do, through the taxes that we pay.
Provided the money is spent wisely, provides us with something we all want and wouldn’t otherwise have been provided because no individual business person would bankroll it, it’s money worth spending.
I love firework displays because they show how as a community we can come together to fund something that would not otherwise exist.
That’s actually the entire point of having a government.
Sure, paying taxes and having someone else spend the money to fund public goods on your behalf opens up the opportunity for waste and inefficiency. That’s why we should limit public spending to those things that are really necessary and the private sector really can’t provide.
But, as public firework displays show, public money well spent can yield real returns.
Who am I kidding? I just love the pretty lights.
This story was published on news.com.au on December 31, 2013