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>if firefighting is privatized, insurance companies would require more fire-resistant building materials and design (instead of the typical match-box American single-family home or low rise apartment)

This is what happens when firefighting and house maintenance are in the same interest. The libertarian argument argues for a private interest, but it could very well be turned on its head in favor of a public interest.

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I think the point is that there are externalities of me building a tinder-box house; namely, the costs of the fire-fighting and potentially burning down the homes of my neighbors. One of the keys to privatization is each would be responsible for the damage his house burning down could cause to others. Thus, if I want insurance, my company may give me a huge discount for building a house of concrete. It would also likely provide my fire-fighting, as it's cheaper than paying for a whole new house.

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