Aug 23, 2013


In "The Lighthouse in Economics" (Coase, 1974) Coase wondered about the extent to which traditionally defined public goods really constitute a market failure. The lighthouse had appeared frequently in the economics literature as a public good that needed to be supplied by the government. However, Coase observed, privately owned lighthouses existed and were typically supported by a harbor tax or equivalent assessment against the vessels that benefitted from them. The real problem was in coming up with an appropriate pricing mechanism and accounting for free riders -- in particular, boats that might pass without actually using the harbor, thus benefitting from the lighthouse without having to pay the tax. Later critics observed, however, that private lighthouses either did not exist at all or else were short-lived relatively unsuccessful ventures. (Bertrand, 2006; Barnett & Block, 2007).
That is from a short and interesting paper on Coase's life and contributions by Herbert J. Hovenkamp.

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