CoaseTHE LIGHTHOUSE IN ECONOMICS.docx

CoaseTHE LIGHTHOUSE IN ECONOMICS.docx

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CoaseTHELIGHTHOUSEINECONOMICS

THELIGHTHOUSEINECONOMICS

.Introduction

Thelighthouseappearsinthewritingsofeconomistsbecauseofthelightitissupposedtothrowonthequestionoftheeconomicfunctionsofgovernment.Itisoftenusedasanexampleofsomethingwhichhastobeprovidedbygovernmentratherthanbyprivateenterprise.Whateconomistsusuallyseemtohaveinmindisthattheimpossibilityofsecuringpaymentfromtheownersoftheshipsthatbenefitfromtheexistenceofthelighthousemakesitunprofitableforanyprivateindividualorfirmtobuildandmaintainalighthouse.

JohnStuartMillinhisPrinciplesofPoliticalEconomy,inthechapter“OftheGroundsandLimitsoftheLaissez-FaireorNon-InterferencePrinciple,”said:

…itisaproperofficeofgovernmenttobuildandmaintainlighthouses,establishbuoys,etc.forthesecurityofnavigation:

forsinceitisimpossiblethattheshipsatseawhicharebenefitedbyalighthouse,shouldbemadetopayatollontheoccasionofitsuse,noonewouldbuildlighthousesfrompersonalinterest,unlessindemnifiedandrewardedfromacompulsorylevymadebythestate.

HenrySidgwickinhisPrinciplesofPoliticalEconomy,inthechapter,“TheSystemofNaturalLibertyConsideredinRelationtoProduction,”hadthistosay:

…thereisalargeandvariedclassofcasesinwhichthesupposition[thatasindividualcanalwaysobtainthroughfreeexchangeadequateremunerationfortheservicesherenders]wouldbemanifestlyerroneous.Inthefirstplacetherearesomeutilitieswhich,fromtheirnature,arepracticallyincapableofbeingappropriatedbythosewhoproducethemorwouldotherwisebewillingtopurchasethem.Forinstance,itmayeasilyhappenthatthebenefitsofawell-placedlighthousemustbelargelyenjoyedbyshipsonwhichnotollcouldbeconvenientlyimposed.

PigouintheEconomicsofWelfareusedSidgwick’slighthouseexampleasaninstanceofuncompensatedservices,inwhich“marginalnetproductfallsshortofmarginalsocialnetproduct,becauseincidentalservicesareperformedtothirdpartiesfromwhomitistechnicallydifficulttoexactpayment.”

PaulA,Samuelson,inhisEconomics,ismoreforthrightthantheseearlierwriters.Inthesectiononthe“EconomicRoleofGovernment,”hesaysthat“governmentprovidescertainindispensablepublicserviceswithoutwhichcommunitylifewouldbeunthinkableandwhichbytheirnaturecannotappropriatelybelefttoprivateenterprise.”Hegivesas“obviousexamples,”themaintenanceofnationaldefense,ofinternallawandorder,andtheadministrationofjusticeandofcontractsandheaddsinafootnote:

…hereisalaterexampleofgovernmentservice:

lighthouses.Thesesavelivesandcargoes;butlighthousekeeperscannotreachouttocollectfeesfromskippers.“So,”saystheadvancedtreatise,“wehavehereadivergencebetweenprivateadvantageandmoneycost[asseenbyamanoddenoughtotrytomakehisfortunerunningalighthousebusiness]andtruesocialadvantageandcost[asmeasuredbylivesandcargoessavedincomparisonwith

（1）totalcostsofthelighthouseand

（2）extracoststhatresultfromlettingonemoreshiplookatthewarninglight].”Philosophersandstatesmenhavealwaysrecognizedthenecessaryroleofgovernmentinsuchcasesof“external-economydivergencebetweenprivateandsocialadvantage.”

LaterSamuelsonagainreferstothelighthouseasa“governmentactivityjustifiablebecauseofexternaleffects.”Hesays:

Takeourearliercaseofalighthousetowarnagainstrocks.Itsbeamhelpseveryoneinsight.Abusinessmancouldnotbuilditforaprofit,sincehecannotclaimapricefromeachuser.Thiscertainlyisthekindofactivitythatgovernmentswouldnaturallyundertake.

Samuelsondoesnotleavethematterhere.Healsousesthelighthousetomakeanotherpoint（onenotfoundintheearlierwriters）.Hesays:

…inthelighthouseexampleonethingshouldbenoticed:

“Thefactthatthelighthouseoperatorscannotappropriateintheformofapurchasepriceafeefromthoseitbenefitscertainlyhelpstomakeitasuitablesocialorpublicgood.Buteveniftheoperatorswereable—say,byradarreconnaissance—toclaimatollfromeverynearbyuser,thatfactwouldnotnecessarilymakeitsociallyoptimalforthisservicetobeprovidedlikeaprivategoodatamarket-determinedindividualprice.Whynot?

Becauseitcostssocietyseroextracosttoletoneextrashipusetheservice;henceanyshopsdiscouragedfromthosewatersbytherequirementtopayapositivepricewillrepresentasocialeconomicsloss—evenifthepricechargedtoallisnomorethanenoughtopaythelong-runexpensesofthelighthouse.Ifthelighthouseissociallyworthbuildingandoperating—anditneednotbe—amoreadvancedtreatisecanshowhowthissocialgoodisworthbeingmadeoptimallyavailabletoall.

ThereisanelementofparadoxinSamuelson’sposition.Thegovernmentgastoprovidelighthousesbecauseprivatefirmscouldnotchargefortheirservices.Butifitwerepossibleforprivatefirmstomalesuchachargetheyshouldnotbeallowedtodoso（whichalsopresumablycallsforgovernmentaction）.Samuelson’spositionusquitedifferentfromthatofMill,SidgwickorPigou.AsIreadthesewriters,thedifficultyofchargingfortheuseofalighthouseisaseriouspointwithimportantconsequencesforlighthousepolicy.Theyhadnoobjectiontochargingassuchandtherefore,ifthiswerepossible,totheprivateoperationoflighthouses.Mill’sargumentisnot,however,freefromambiguity.Hearguesthatthegovernmentshouldbuildandmaintainlighthousesbecause,sinceshipsbenefittedcannotbemadetopayatoll,privateenterprisewouldnotprovidealighthouseservice.Buthethenaddsaqualifyingphrase“unlessindemnifiedandrewardedfromacompulsorylevymadebythestate.”Itakea“compulsorylevy”tobeoneimposedonshipsbenefitedbythelighthouse（thelevywouldbe,ineffect,atoll）.TheelementofambiguityinMill’sexpositioniswhetherhemeantthatthe“compulsorylevy”wouldmakeitpossibleforpeopleto“buildlighthousesfrommotivesofpersonalinterest”andthereforeforgovernmentoperationtobeavoidedorwhetherhemeantthatitwasnotpossible（ordesirable）forprivatefirmstobe“indemnifiedandrewardedfromacompulsorylevy”andthatthereforegovernmentoperationwasrequired.MyownopinionisthatMillhadinmindthefirstofthesealternativeinterpretationsand,ifthisisright,itrepresentsanimportantqualificationtohisviewthatbuildingandmaintaininglighthousesis“aproperofficeofthegovernment.”Inanycase,itseemsclearthatMillhadnoobjectioninprincipletotheimpositionoftolls.Sidgwick’spoint（towhichPigourefers）raisesnoproblemsofinterpretation.Itis,however,veryrestrictedincharacter.Hesaysthat“itmayeasilyhappenthatthebenefitsofawell-placedlighthousemustbelargelyenjoyedbyshipsonwhichnotollcouldbeconvenientlyimposed.”Thisdoesnotsaythatchargingisimpossible:

indeed,itimpliesthecontrary.Whatitsaysisthattheremaybecircumstancesinwhichmostofthosewhobenefitfromthelighthousecanavoidpayingthetoll.Itdoesnotsaythattheremaynotbecircumstancesinwhichthebenefitsofthelighthousearelargelyenjoyedbyshipsonwhichatollcouldbeconvenientlylaidanditimpliesthat,inthesecircumstances,itwouldbedesirabletoimposeatoll—whichwouldmakeprivateoperationoflighthousespossible.

Itis,Ithink,difficulttounderstandexactlywhatMill,SidgwickandPigoumeantwithoutsomeknowledgeoftheBritishlighthousesystemsince,althoughthesewriterswereprobablyunfamiliarwithhowtheBritishsystemoperatedindetail,theyweredoubtlessawareofitsgeneralcharacterandthismusthavebeeninthebackoftheirmindswhenheywroteaboutlighthouses.However,knowledgeoftheBritishlighthousesystemnotonlyenablesonetohaveagreaterunderstandingofMill,SidgwickandPigou;italsoprovidesacontextwithinwhichtoappraiseSamulson’sstatementsaboutlighthouses.

.TheBritishLighthouseSystem

TheauthoritiesinBritainwhichbuildandmaintainlighthousesareTrinityHouse（forEnglandandWales）,theCommissionersofNorthernLighthouses（forScotland）andtheCommissionersofIrishLights（forIreland）.TheexpensesoftheseauthoritiesaremetoutoftheGeneralLighthouseFund.TheincomeofthisFundisderivedfromlightdues,whicharepaidbyship-owners.TheresponsibilityformakingthearrangementsforthepaymentofthelightduesandformaintainingtheaccountsisplacedonTrinityHouse（whetherthepaymentsaremadeinEngland,Wales,ScotlandorIreland）althoughtheactualcollectionismadebythecustomsauthoritiesattheports.ThemoneyobtainedfromthelightduesispaidintotheGeneralLighthouseFund,whichisunderthecontroloftheDepartmentofTrade.ThelighthouseauthoritiesdrawontheGeneralLighthouseFundtomeettheirexpenditures.

TherelationoftheDepartmentofTradetothevariouslighthouseauthoritiesissomewhatsimilartothatoftheTreasurytoaBritishGovernmentDepartment.ThebudgetsoftheauthoritieshavetobeapprovedbytheDepartment.TheproposedbudgetsofthethreeauthoritiesaresubmittedaboutChristmastimeandarediscussedataLighthouseConferenceheldannuallyinLondon.InadditiontothethreelighthouseauthoritiesandtheDepartment,therearealsopresentattheconferencemembersoftheLightAdvisoryCommittee,acommitteeoftheChamberofShipping（atradeassociation）representingship-owners,underwritersandshippers.TheLightsAdvisoryCommittee,althoughwithoutstatutoryauthority,playsanimportantpartinthereviewprocedurea