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Complexity and the Economy

Complexity and the Economy

Implications for Economic Policy

Edited by John Finch and Magali Orillard

The authors examine the causes and consequences of complexity among the broadly economic phenomena of firms, industries and socio-economic policy. The book makes a valuable contribution to the increasingly prominent subject of complexity, especially for those whose interests include evolutionary, behavioural, political and social approaches to understanding economics and economic phenomena.

Chapter 9: Two Complex Lighthouse Production Systems: The Mixed English and the Centralized French Systems

Elodie Bertrand

Subjects: economics and finance, evolutionary economics, institutional economics


Elodie Bertrand A comprehensive illustration of the inadequacies of the usual approach of economists to questions of economic policy, at any rate in microeconomics, is provided by the example of the lighthouse. (Coase 1988, p. 29) INTRODUCTION Lighthouses are often used by the nineteenth and twentieth century economists as examples of services whose production has to be provided by government. They refer to the practical impossibility of getting payments from users, discouraging private entrepreneurs from providing this service (Mill [1848] 1965, p. 968; Sidgwick 1901, p. 406; Pigou 1948, p. 184). This problem is also stressed by Samuelson (1964, p. 159): the light provided by a lighthouse is a public good (non-rivalry and non-excludability). Samuelson adds a second argument; the use of the lighthouse service by a ship does not imply extra costs: the problem is one of setting the price of a natural monopoly. Even if the payments could be enforced, a private enterprise could never fix an optimal price since the marginal cost of this service is equal to zero.1 However, in a very famous paper, ‘The lighthouse in economics’, Coase ([1974] 1988) criticized the use of the traditional lighthouse example. He points out some British lighthouses were built and maintained by private individuals until the early nineteenth century. In Coase’s view, this case study stresses methodological deficiencies of mainstream economics. First, Coase concludes that economists should not quote examples before having rigorously studied concrete cases. Empirical research is more relevant than ‘blackboard’ general theories in 191...

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