LoJack, a system used to recover stolen vehicles, is a private good that generates external benefits. A small, silent transmitter hidden in a vehicle allows police to track a stolen car. The name is a play on words, meant to convey the idea that LoJack will recover vehicles that are hijacked or stolen. A thief who steals a LoJack-equipped car won t keep the car for long and is likely to get caught, so LoJack is an effective deterrent to car theft. Car thieves cannot distinguish between cars with and without LoJack, so the system decreases the payoff from car theft in general, and criminals steal fewer cars. People who install LoJack systems in their cars generate benefits for themselves and external benefits for other car owners who don t have LoJack.
A study by two economists estimated the private and external benefits from LoJack. The annual cost of a LoJack system is about $100. For a car owner who carries theft insurance, the benefit from a LoJack system is the discount offered by an insurance company, typically well below the $100 annual cost. For every three LoJack systems installed, the number of auto thefts decreases by one car per year. The external benefit from fewer vehicle thefts is about $1,300 per LoJack per year. The benefits are experienced by people who don t buy their own LoJack systems but who benefit because thieves can never be sure whether a particular car is protected by LoJack or not.