Implications for Economic Policy
Edited by John Finch and Magali Orillard
Chapter 9: Two Complex Lighthouse Production Systems: The Mixed English and the Centralized French Systems
9. Two complex lighthouse production systems: the mixed English and the centralized French systems 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  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 ( 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...
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