The lighthouse in economics – a Swedish case

Björn Hasselgren, October 23, 2013

School of Architecture and the Built Environment

Research questions

• What was the core message in Coase’s classical 1974 article on the ”Lighthouse in Economcis”?

• How has Coase been countered?

• Is there a Swedish experience from organization of lighthouses that differ from the standard ”market failure” model?

Private or public good – or both?

Coase

Organi-zational

efficiency

Institutional

Pigou

Welfare optimizati

on

Neo-classical

Marginal cost

coverage

Full cost

coverage

Ear-marking

General tax

revenue

Coase’s conclusions

• Economists (Mill, Sidgwick, Pigou, Samuelson) have drawn conclusions from a too simplified dichotomy with private/public goods without proper basis in empirics

• Coase supplied empirical examples of private sector engagement in the core “public goods” sector, the Trinity House (management body for light houses ni the UK)

• Private engagement is likely to be more efficient and open to the needs of the users than government administration based on taxes

• Further studies should be made, but the Samuelsonian “clean” example does not seems to exist

Some of the critical voices – and supporters

• Van Zandt (1993) argued that there were no clean cases and that most of them were blurred and that Coase was mistaken

• Barnett & Block (2007) argues that both were right and wrong; there have been purely private examples but mostly backed by governments

• Both seem to be focusing on the dichotomy public private (excludability/free riders etc) not on the merit as such of private vs public management and the likely efficiency of these – ”the lighthouse presents a setting of conflict among institutional arrangements” -> entrepreneurial opportunity (Wagner, 2007)

A Swedish case

• Lindberg (2012) a number of cases of contracting out of lighthouses – 17-18th century

• Lighhouses have been provided historically by government and private operators through concessions

• Nationalization of a relatively few privately run lighthouses in 1839

• Dominating fee-funding from users

• Lindberg argues that Coase speaks in favour of the free market, which seems wrong

• Also argues that Samuelson is wrong – not only government

Examples from Sweden – municipalities, Sundsvall 1901

Examples from Sweden – private 1900

Direktionen för segelsjöfartens förbättrande på sjön Wänern, 1855

• 1851-55 five new lighthouses

• Fee funded according to government concession from 1813

Swedish 19-20th century lighthouses - experience

• Predominantly government run – but fee funded

• A variety of organizational models

• Light-houses often connected to industries

• Coase seems to be fairly right - private or club organization with support from government regulation

• Openness to some experimentation

• More research necessary

Björn Hasselgren, PhD

KTH Royal Institute of Technology

Architecture and the Built Environment

+46-70-762 33 16

bjorn.hasselgren@abe.kth.se

www.kth.se/blogs/hasselgren

@HasselgrenB