The Lighthouse in Economics

Ronald Coase (1974)

Public Goods

• Nonexcludable: when one person consumes the good, there is no way to prevent others from consuming it as well.

• Nonrivalrous: when one person consumes the good, it becomes possible to provide it to others at no additional cost.

1842 in England

• Lighthouses were public goods.• No privately owned lighthouses• John Stuart Mill (1848): .. It is proper office of government to

build and maintain lighthouses, establish buoys, etc. for the security of navigation: 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, …

• Henry Sidgwick (1883), Principles of Political Economy• A. C. Pigou (1932), The Economics of Welfare

Trinity House

• The authorities in Britain which build and maintain lighthouses are Trinity House (for England and Wales), the Commissioners of Northern Lighthouses (for Scotland), and the Commissioners of Irish Lights (for Ireland).

• Trinity House seems to have evolved out of a medieval seamen’s guild.

• In 1514 Trinity House was given the right to regulate pilotage.

Lighthouses

• There were few lighthouses in Britain before the 17th century.

• Early in the 17th century, Trinity House established lighthouses at Caister and Lowestoft. But it was not until late in the century that it built another lighthouse.

• In the period 1610-1675, at least 10 lighthouses were built by private individuals.

Private lighthouses?

• “A characteristic element in Elizabethan society were the promoters of projects advanced ostensibly for the public benefit but in reality intended for private gains. Lighthouses did not escape their attention.”

• To avoid infringing Trinity House’s statutory authority, they obtained a patent from the Crown which empowered them to build a lighthouse. – The King presumably used these grants of patents

on occasion as a means of rewarding those who have served him.

• In the meantime, Trinity House would apply for a patent to operate a lighthouse and would then grant a lease, for a rental, to a private individual who would then build the lighthouse with his own money.– Ex. Eddystone, on a reef of rocks some 14 miles

offshore from Plymouth. “[It] provides the most dramatic chapter in lighthouse history: in striving to withstand the force of the waves, their builders showed enterprise, ingenuity and courage of a higher order.”

Toll collection

• Tolls were collected at the ports.• Ships paid a toll for each lighthouse passed.• Books were published setting out the

lighthouses passed on different voyages and the charges that would be made.

Trinity House v. private organizations

• 1820, 24:22– But many of the TH lighthouses had not been built

originally by them but had been acquired by purchase or as the result of the expiration of a lease.

– Only 11 out of the 46 lighthouses had been originally built by TH.

• In 1836, an Act of Parliament vested all lighthouses in England in Trinity House, which was empowered to purchase the remaining lighthouses in private hands. This was accomplished by 1842.

Why the change?

• “… a considerable portion of the establishments of lighthouses have been made the means of heavily taxing the Trade of the country, for the benefit of a few private individuals, who have been favored with that advantage by the Ministers and the Sovereign of the day. …. The Light Dues should in every case be reduced to the smallest sums requisite to maintain the existing Lighthouses and Floating Lights…” (Select committee of the House of Commons of 1834)