The Lighthouse in Economics

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"The Lighthouse in Economics" is a 1974 academic paper written by British economist Ronald H. Coase.

This paper challenges the traditional view that lighthouses are examples of public goods by showing that privately owned lighthouses existed in England. Coase aligned lighthouses more with club goods because they are excludable by way of charging port fees. Stopping short of a full analysis, the paper is generally viewed[who?] as an excellent insight into the dimensions of public goods and an invitation by Coase for a full economic analysis of the lighthouse.

Recently, the paper has been criticized by Van Zandt (1993) and Bertrand (2006) for not fully appreciating the characteristic of non-excludability of public goods. Historical records showed that those lighthouses which ran on voluntary payment did not survive long and eventually had to be granted the right to collect a light due by the government. Although other lighthouses were run privately, the right to collect a non-negotiable light due was supported by a patent from the crown. In other words, they were not privately provided via the free market as understood by the earlier writers.

Eventually, all these rights were withdrawn or bought up by the authorities because the total light dues that had to be paid by ships were too high as a result of rent-seeking activities of these so-called private providers of lighthouses. Barnett and Block (2007) qualify these critiques by showing that private lighthouses are possible, but do not show up in the historical record. Private lighthouses could obtain fees through negative publicity, voluntary clubs, and turning off the light to free riders.

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Further reading[edit]

  • Coase, Ronald H. (1974), "The Lighthouse in Economics", Journal of Law and Economics, 17 (2): 357–376, doi:10.1086/466796
  • Van Zandt, David E. (1993), "The Lessons of the Lighthouse: "Government" or "Private" Provision of Goods", Journal of Legal Studies, 22 (1): 47–72, doi:10.1086/468157
  • Bertrand, Elodie (2006), "The Coasean Analysis of Lighthouse Financing: Myths and Realities", Cambridge Journal of Economics, 30 (3): 389–402, doi:10.1093/cje/bei068
  • Barnett, William and Block, Walter; Block, W. (November 2007), "Coase and Van Zandt on Lighthouses", Public Finance Review, 35 (6): 710–733, doi:10.1177/1091142107302182