The Market and the Lighthouse. Public Goods in Historical Perspective
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Conclusion: Lessons from the lighthouseWe may conclude with Coase that private enterprise indeed may produce public goods, such as lighthouse services. This private system comes close to the one Mill suggested: “for since it is impossible that the ships at sea which are benefited by a lighthouse should be made to pay a toll on the occasion of its use, no one would build lighthouses from motives of personal interest, unless indemnified and rewarded from a compulsory levy made by the state.”86 This provision was only possible with a significant involvement of government activity, far more than Coase’s account suggested. From his study, Coase drew two lessons: that lighthouses could be produced by private enterprise and that generalizations about policy should not be based on arm chair theorizing but “from studies of how such activities are actually carried out within different institutional frameworks”.87 The lesson from the Swedish and British cases is that in an underdeveloped economy a rental system based on private capital provided by risk willing entrepreneurs might be a feasible solution when governments are unwilling to take the financial risk of providing lighthouse services. But such a rental system has its obvious draw backs. Lighthouses in both Sweden and Britain were nationalised when economic growth, accompanied with an increased number of ship movements, increased the revenues from the lighthouses. Combined with an increased government ability to build and maintain lighthouses and to collect dues, lighthouses no longer were operated on a private basis. The rental system characterising both national lighthouse systems before the 1830s had several problems that the governments in respective countries tried to remedy by centralising the administration and nationalising ownership. Samuelson’s analysis led him to endorse full government provision financed out of general taxation while Coase’s analysis seems to endorse user fees. Van Zandt’s analysis and the principal-agent literature on contractual schemes suggest that there may not be one ideal solution for all situations. Policy choices regarding lighthouse provision have to stay clear of two inherent dangers: government funding might lead to inefficient bureaucracies, while the “private” provision endorsed by Coase might lead to monopolistic behaviour and excess profits that in reality was taxation of trade. LiteratureBarnett, William and Walter Block, “Coase and Van Zandt on Lighthouses”, Public Finance Review, 35 (2007), pp. 710-733. Bertrand, Elodie, “The Coasean Analysis of Lighthouse Financing: Myths and Realities”, Cambridge Journal of Economics, 30 (2005), pp. 389-402. Carlsson, Hilmer, Nidingen. Sveriges första fyrplats. Onsala (1993). Coase, Ronald H., “The Lighthouse in Economics”, Journal of Law and Economics, 17 (1974), pp. 357-376. Fischel, William A., “Public Goods and Property Rights: Of Coase, Tiebout, and Just Compensation”, paper presented at the conference for Economics and Property Rights at the Hoover Institution, Stanford, CA, (2000). Hague, Douglas B and Rosemary Christie, Lighthouses. Their Architecture, History and Archeology. Llandsysul (1975). Harris, G.G., The Trinity House of Deptford 1514-1660. London (1969). Hedin, Anders, Lysande skärgård. Bokförlaget Max Ström (2005). Mill, J.S. Collected Works by John Stuart Mill, book III: Principles of Political Economy. Toronto (1965). Report from the Select Committee on Lighthouses 1834. Parliamentary papers session 1834, vol. 12 (1834). Samuelson, Paul A., “Diagrammatic Exposition of a Theory of Public Expenditure”, Review of Economics and statistics, 37 (1955). Sandström, Anders, Under säker flagga. Studier i svenskt lotsväsen 1870-1914. Stockholm (1972). Statsutskottets betänkanden, nr 244 (Bihang till samtliga riksståndens protokoll, 4:e samlingen, 2:dra bandet). (1823). Stevenson, David A. The World’s Lighthouses Before 1820. London (1959). Taylor, James, “Private Property, Pubic Interest, and the Role of the Sate in Nineteenth Century Britain: the Case of the Lighthouses”, Historical Journal, 44 (2001), pp. 749-771. Van Zandt, David E., “The Lessons from the Lighthouse: “Government” or “Private” provision of Goods”, Journal of Legal Studies, 22 (1993), pp. 47-72. White, Eugene N., “From Privatized to Government-administered Tax Collection: Tax Farming in Eighteenth Century France”, Economic History Review, LVII (2004), pp. 636-663. 1 Coase (1974) 375. 2 Coase (1974) 374-75. 3 Coase (1974) 376. 4 Barrowclough (1999) 442. 5 Cowen (1988) cited in Barnett and Block (2007) 713. 6 (URL:http://libertariannation.org/a/f21l4.html) 7 (URL: http://independent.org/aboutus/lighthouse.asp) 8 Van Zandt (1993) 48. 9 Van Zandt (1993) 71. 10 Bertrand (2006) 390. 11 Bertrand (2006) 390. 12 Taylor (2001) 750. 13 Interview in Reason 1997. [http//:] 14 Barnett and Block (2007) 718. 15 Van Zandt (1993) 69. van Zandt defines ”private” meaning ”that the role of government is limited to that of establishing and enforcing property right entitlements to resources and enforcing freely-agreed-to contracts”, p. 54. 16 Fischel (2000) 6. 17 Bertrand (2006) 401. 18 Samuelson (1955) 350. 19 The problem of non-rivalness is light house service consumption is not important in the discussion about how lighthouses should be organized. 20 Fischel (2000) 6. 21 Hague and Christie (1975). 22 Cited in van Zandt (1993) 51. 23 Samuelson (1964) 45, quoted in Fischel (2000) 2. 24 Samuelsson (1964) 45, quoted in Coase (1974) 358. 25 Coase (1974) 359. 26 Quoted in van Zandt (1993) 11 note 17. 27 Van Zandt (193) 52. Coase’s concern was to understand the practical aspects of lighthouse arrangements and to refute Mill’s, Sidgwick’s, Pigou’s and Samuelson’s claims that this service was a quintessential public good. If we look at the wider issue, that of providing navigational guidance necessary for safe transport, van Zandt’s suggestion is not that far fetched after all. There was, historically, a competitive market mechanism providing safe transport at sea, namely coastal pilots. This aspect was not considered by neither Coase nor van Zandt. 28 Van Zandt (1993) 51. 29 Coase (1974) 364. 30 Selected Committee… on lighthouses (PP 1845, p. vi). 31 Coase (1974) 369. 32 Ireland and Scotland had their own respective lighthouse authorities: Commissioners of Irish Lights and Commissioners of the Northern Lighthouses. 33 As emphasised by Bertrand, in a Coasean world there is not theoretical optimum, just different institutional arrangements with pros and cons. 34 Coase (1974) 375. 35 Coase (1974) 375. 36 Van Zandt (1993) 56. 37 Van Zandt (1993) 55. 38 Bertrand (2006) 401. 39 Bertrand (2006) 396. 40 Fischel (200) 6. 41 Fischel (200) 6. 42 Based on White’s (2004) analysis of tax farming. 43 Van Zandt (1993) 67. 44 White, E (2004). 45 Taylor (2001) 750. 46 Hague and Christie (1975) 26-27. 47 Coase (1974) 373. 48 Bertrand (2006) 398. 49 Coase (1974) 364. 50 Taylor (2001) 396. 51 Coase (1974) 363. 52 Taylor (2001) 750. 53 Sandström (1972), p. 13. 54 Hedin (2005) 51. 55 Bertrand (2006) 399. 56 Coase (1974) 364 quoting Harris (1969) 187. 57 Coase 81974) 364 quoting Harris (1969) 187. 58 Bertrand (2006) 400, Hague and Christie (1975) 29. Coase recognized this public choice problem (p. 364), without elaborating on its consequences. 59 Van Zandt (1993) 68. 60 Hague and Christ (1975) 29-30. 61 Hague and Christie (1975) 42. 62 Hague and Christie (1975) 44-45. 63 Taylor (2001) 753. 64 Selected Committee… on lighthouses (PP 1845, p. ix). 65 Carlsson, Hilmer (1993) 66 Bihang till samtliga riksståndens protokoll, 4: saml, 2:dra bandet, no 244. 67 Van Zandt (1993) 59. 68 Van Zandt (1993) 60. 69 Van Zandt (1993) 64. 70 They can, of course, be viewed as public goods for ships not entering the port but using the light from the lighthouse as a navigational aid. 71 Coase (1974) 366. 72 Bertrand (2006) 399. 73 Stevenson (1959) p 120, describes several attempts by the lessees to carry put considerable repairs in the 1720s and 30s to halt the decay of the construction. 74 Hedin (2005), p. 77, 171. 75 Hague and Christie (1975) 32, Stevenson (1959) 102. 76 Van Zandt (1993) 65. 77 Van Zandt (1993) 68 note 86. 78 Hague and Christie (1975) 44. 79 Van Zandt (1993) 69. 80 Taylor (2001) 749. 81 Taylor (2001) 750. 82 1834 Report, pp. iii-iv, quoted by Coase 1974, p. 368. 83 Taylor (2001). 756. 84 Coase (1974) 369. 85 Taylor (2001) 750. 86 Mill (1965) 968. Italics added. 87 Coase (1974) 375. |