The lighthouse in economics - the Swedish experience

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Presentation given at the second national Swedish transport research conference. Discusses the existence of different organizational models for providing services in transport infrastructure generally seen as cases for public sector provision, such as lighthouses. The presentation relates to Coase's 1974 article on "The lighhouse in economics".

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The lighthouse in economics - the Swedish experience

  1. 1. The lighthouse in economics – a Swedish case Björn Hasselgren, October 23, 2013 School of Architecture and the Built Environment
  2. 2. 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?
  3. 3. Private or public good – or both? Ear-marking Coase Organizational efficiency Full cost coverage Institutio nal Pigou Welfare optimizati on Neoclassical General tax revenue Marginal cost coverage
  4. 4. 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
  5. 5. 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)
  6. 6. 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
  7. 7. Examples from Sweden – municipalities, Sundsvall 1901
  8. 8. Examples from Sweden – private 1900
  9. 9. Direktionen för segelsjöfartens förbättrande på sjön Wänern, 1855 • 1851-55 five new lighthouses • Fee funded according to government concession from 1813
  10. 10. 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
  11. 11. 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

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