Investigating theft takes up police time, which expends taxpayer resources. The market wouldn't take this into account.

Also, "doesn't California have bigger issues to worry about" is just silly, as if the government of an enormous state can only do one thing at a time.

The market is skewed by the limited competition in the carrier space (caused by limited spectrum allocation), and the carriers have an incentive to not introduce kill switches http://www.huffingtonpost.com/2013/11/20/iphone-kill-switch_...