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Pass-Through Costs



In my last post, I mentioned insurance premiums as a potential pass-through cost from landowners to tenants. Landowners will seek to pass other costs on to tenants as well -- particularly the out-of-pocket costs needed to hire security guards. Judicial requirements of additional security always have the greatest impact in low-income, high-crime areas. When a landowner's duty to protect is expanded, there are identifiable societal costs that go along with it.

Since protection costs money, how would a business operating on a small profit margin fulfill its obligation in a high-crime area? If business owners absorb the high cost of protection by raising the price of their goods and services, how will the poor (who most often reside in areas where the incidence of crime is greatest) be able to meet their basic needs given the minimal financial resources available to them? In all practicality, would they not be singled out as the ones to pay for their own police protection? Would it not be more economical for businesses to close their doors and relocate to "safer ground" ? If so, how would indigent members of that community who lack adequate means of transportation be able to obtain needed goods and services? Sigfredo A. Cabrera, Negligence Liability of Landowners and Occupiers for the Criminal Conduct of Another: On a Clear Day in California One Can Foresee Forever, 23 Cal. W. L. Rev. 165, 188 (1987).

Businesses can absorb only a certain amount of additional cost before passing those costs onto the customers they serve. If the goods become too high-priced, they will not sell and the business will close. Or if the business decides that it cannot recoup its costs, then it simply will find another location where the clientele can afford the higher prices. This has a further economically depressing effect on residents of low-income areas who themselves wish to become entrepreneurs but find the entry costs too high. Because these entrepreneurs would hire other residents, the total effect of a business precluded from opening is increased joblessness; fewer available, affordable services; and a neighborhood that remains mired in economically depressed circumstances.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.