Disclaimer. Don't rely on these old notes in lieu of reading the literature, but they can jog your memory. As a grad student long ago, my peers and I collaborated to write and exchange summaries of political science research. I posted them to a wiki-style website. "Wikisum" is now dead but archived here. I cannot vouch for these notes' accuracy, nor can I even say who wrote them. If you have more recent summaries to add to this collection, send them my way I guess. Sorry for the ads; they cover the costs of keeping this online.
Coase. 1974. The lighthouse in economics. Journal of Law and Economics 17 (October): 357-76.
Coase's point: Economists point to lighthouses as an example of a service that would never be provided without government support. However, a close look at the evolution of the English and Welch lighthouse systems shows that several private entrepreneurs built and ran lighthouses profitably. The Government bought up all the lighthouses and established a central authority in the 19th century in order to standardize lighthouse dues, not to ensure that they would be built.
As a side point, Coase notes that the Government did not take control of the lighthouses and fund them out of the Treasury. Doing so would have created inefficiencies. Instead, it left lighthouse consumers (ship owners, shippers, and underwriters) in charge of paying the dues, and it gave them control over lighthouse policy through a Light Advisory Committee--which presumably would not approve any change that did not have a net benefit.
I'm not persuaded, though that Coase proved his point. All the private entrepreneurs who built lighthouses had to get permission from the Crown in order to do so. Coase doesn't say it, but this implies that they received authority to force shippers to pay lighthouse dues. If this is true, then a free market could not have produced lighthouses. Even though the British government didn't build the lighthouses, they might not have been built without government authority.
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