By the criteria that economists usually employ, this suggests that Lojacks should be heavily subsidized, just as visible security systems--like my neighbor's home burglar alarm or the Club--should be taxed. When you're doing something that makes strangers better off, you should be encouraged to do more of it.
If we all used the same insurance company, you might expect that company to supply the appropriate subsidy. As long as your Lojack reduces the number of insurance claims, the company should be willing to pay you to install it. But with multiple insurance companies, that doesn't work so well: A company that insures only 10 percent of the populace will reap only 10 percent of the Lojack's benefits, and so will undersubsidize them. Worse yet, large insurance discounts are illegal in many states.
The media have recently paid a lot of attention to research on other kinds of self-protection, most notably the work of John Lott and David Mustard on concealed handguns. But the Lojack research is in many ways more informative, because the authors were able to do a thorough job of distinguishing between benefits to the purchaser of a Lojack and benefits to the community at large. That discrepancy is the sort of thing that leads markets to fail--in this case by providing too many Clubs and not enough Lojacks.
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