CoaseTHE LIGHTHOUSE IN ECONOMICS.docx

1、CoaseTHE LIGHTHOUSE IN ECONOMICS THE LIGHTHOUSE IN ECONOMICS. IntroductionThe lighthouse appears in the writings of economists because of the light it is supposed to throw on the question of the economic functions of government. It is often used as an example of something which has to be provided by

2、 government rather than by private enterprise. What economists usually seem to have in mind is that the impossibility of securing payment from the owners of the ships that benefit from the existence of the lighthouse makes it unprofitable for any private individual or firm to build and maintain a li

3、ghthouse.John Stuart Mill in his Principles of Political Economy, in the chapter “Of the Grounds and Limits of the Laissez-Faire or Non-Interference Principle,” said:it is a proper office of government to build and maintain lighthouses, establish buoys, etc. for the security of navigation: for since

4、 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 personal interest, unless indemnified and rewarded from a compulsory levy made by the state.Henry Sidgwick in his Principles of Po

5、litical Economy, in the chapter, “The System of Natural Liberty Considered in Relation to Production,” had this to say:there is a large and varied class of cases in which the supposition that as individual can always obtain through free exchange adequate remuneration for the services he renders woul

6、d be manifestly erroneous. In the first place there are some utilities which, from their nature, are practically incapable of being appropriated by those who produce them or would otherwise be willing to purchase them. For instance, it may easily happen that the benefits of a well-placed lighthouse

7、must be largely enjoyed by ships on which no toll could be conveniently imposed.Pigou in the Economics of Welfare used Sidgwicks lighthouse example as an instance of uncompensated services, in which “marginal net product falls short of marginal social net product, because incidental services are per

8、formed to third parties from whom it is technically difficult to exact payment.” Paul A, Samuelson, in his Economics, is more forthright than these earlier writers. In the section on the “Economic Role of Government,” he says that “government provides certain indispensable public services without wh

9、ich community life would be unthinkable and which by their nature cannot appropriately be left to private enterprise.” He gives as “obvious examples,” the maintenance of national defense, of internal law and order, and the administration of justice and of contracts and he adds in a footnote:here is

10、a later example of government service: lighthouses. These save lives and cargoes; but lighthouse keepers cannot reach out to collect fees from skippers. “So,” says the advanced treatise, “we have here a divergence between private advantage and money cost as seen by a man odd enough to try to make hi

11、s fortune running a lighthouse business and true social advantage and cost as measured by lives and cargoes saved in comparison with (1) total costs of the lighthouse and (2)extra costs that result from letting one more ship look at the warning light.” Philosophers and statesmen have always recogniz

12、ed the necessary role of government in such cases of “external-economy divergence between private and social advantage.”Later Samuelson again refers to the lighthouse as a “government activity justifiable because of external effects.” He says:Take our earlier case of a lighthouse to warn against roc

13、ks. Its beam helps everyone in sight. A businessman could not build it for a profit, since he cannot claim a price from each user. This certainly is the kind of activity that governments would naturally undertake. Samuelson does not leave the matter here. He also uses the lighthouse to make another

14、point (one not found in the earlier writers). He says:in the lighthouse example one thing should be noticed: “The fact that the lighthouse operators cannot appropriate in the form of a purchase price a fee from those it benefits certainly helps to make it a suitable social or public good. But even i

15、f the operators were ablesay, by radar reconnaissanceto claim a toll from every nearby user, that fact would not necessarily make it socially optimal for this service to be provided like a private good at a market-determined individual price. Why not? Because it costs society sero extra cost to let

16、one extra ship use the service; hence any shops discouraged from those waters by the requirement to pay a positive price will represent a social economics losseven if the price charged to all is no more than enough to pay the long-run expenses of the lighthouse. If the lighthouse is socially worth b

17、uilding and operatingand it need not bea more advanced treatise can show how this social good is worth being made optimally available to all.There is an element of paradox in Samuelsons position. The government gas to provide lighthouses because private firms could not charge for their services. But

18、 if it were possible for private firms to male such a charge they should not be allowed to do so (which also presumably calls for government action). Samuelsons position us quite different from that of Mill, Sidgwick or Pigou. As I read these writers, the difficulty of charging for the use of a ligh

19、thouse is a serious point with important consequences for lighthouse policy. They had no objection to charging as such and therefore, if this were possible, to the private operation of lighthouses. Mills argument is not, however, free from ambiguity. He argues that the government should build and ma

20、intain lighthouses because, since ships benefitted cannot be made to pay a toll, private enterprise would not provide a lighthouse service. But he then adds a qualifying phrase “unless indemnified and rewarded from a compulsory levy made by the state.” I take a “compulsory levy” to be one imposed on

21、 ships benefited by the lighthouse (the levy would be, in effect, a toll). The element of ambiguity in Mills exposition is whether he meant that the “compulsory levy” would make it possible for people to “build lighthouses from motives of personal interest” and therefore for government operation to

22、be avoided or whether he meant that it was not possible (or desirable) for private firms to be “indemnified and rewarded from a compulsory levy” and that therefore government operation was required. My own opinion is that Mill had in mind the first of these alternative interpretations and, if this i

23、s right, it represents an important qualification to his view that building and maintaining lighthouses is “a proper office of the government.” In any case, it seems clear that Mill had no objection in principle to the imposition of tolls. Sidgwicks point (to which Pigou refers) raises no problems o

24、f interpretation. It is, however, very restricted in character. He says that “it may easily happen that the benefits of a well-placed lighthouse must be largely enjoyed by ships on which no toll could be conveniently imposed.” This does not say that charging is impossible: indeed, it implies the con

25、trary. What it says is that there may be circumstances in which most of those who benefit from the lighthouse can avoid paying the toll. It does not say that there may not be circumstances in which the benefits of the lighthouse are largely enjoyed by ships on which a toll could be conveniently laid

26、 and it implies that, in these circumstances, it would be desirable to impose a tollwhich would make private operation of lighthouses possible.It is, I think, difficult to understand exactly what Mill, Sidgwick and Pigou meant without some knowledge of the British lighthouse system since, although t

27、hese writers were probably unfamiliar with how the British system operated in detail, they were doubtless aware of its general character and this must have been in the back of their minds when hey wrote about lighthouses. However, knowledge of the British lighthouse system not only enables one to ha

28、ve a greater understanding of Mill, Sidgwick and Pigou; it also provides a context within which to appraise Samulsons statements about lighthouses. The British Lighthouse SystemThe authorities in Britain which build and maintain lighthouses are Trinity House (for England and Wales), the Commissioner

29、s of Northern Lighthouses (for Scotland) and the Commissioners of Irish Lights (for Ireland). The expenses of these authorities are met out of the General Lighthouse Fund. The income of this Fund is derived from light dues, which are paid by ship-owners. The responsibility for making the arrangement

30、s for the payment of the light dues and for maintaining the accounts is placed on Trinity House (whether the payments are made in England, Wales, Scotland or Ireland) although the actual collection is made by the customs authorities at the ports. The money obtained from the light dues is paid into t

31、he General Lighthouse Fund, which is under the control of the Department of Trade. The lighthouse authorities draw on the General Lighthouse Fund to meet their expenditures.The relation of the Department of Trade to the various lighthouse authorities is somewhat similar to that of the Treasury to a

32、British Government Department. The budgets of the authorities have to be approved by the Department. The proposed budgets of the three authorities are submitted about Christmastime and are discussed at a Lighthouse Conference held annually in London. In addition to the three lighthouse authorities a

33、nd the Department, there are also present at the conference members of the Light Advisory Committee, a committee of the Chamber of Shipping (a trade association) representing ship-owners, underwriters and shippers. The Lights Advisory Committee, although without statutory authority, plays an important part in the review procedure a