Asymmetrical Information

Most of the fire safety codes in this country were written by companies that sell fire insurance. If you don't build in accordance with their rules, they will not sell you insurance - if you have no insurance, you cannot get a loan on your building.
When OSHA was first formed, they just adopted the safety requirements of insurers, adding only things like the minimum number of required coathangers and such.
I suspect that, in the time before modern aids to navagation, someone voyaging to a location that lacked lighthouses and other navigation aids would have to pay much higher premiums, like the war premiums charged shipping that sails into war zones.
So far, no need for coercion except to punish people who falsely claim to carry adequate insurance, and a couple of Queens New York enforcers could break kneecaps for that cheaper than any government sanctioning agency.

OK, having admitted that you haven’t followed the argument, you are then willing to conclude (call it “quibble” all you like) that Davies has demonstrated that government provision of public goods is suboptimal. Well, we can toss your conclusions out pretty readily. Just more of dear Janey tooting her favorite horn. Again, all you do is make yourself seem unreliable with such stuff. D Squared did an interesting piece. You pointed it out. Why go on and make a mess of it?

Now, if you had followed the argument, either at D squared or over a Brad Delong’s place, you would already know that the basing an argument on what port operators would do is not all that helpful. Delong pointed out that individual docks often had individual owners, which creates a free-rider problem that a single-owner port wouldn’t present. You need to be careful in arguing that port owners' behavior is all that important in such cases. In addition, Davies notes that there are two sets of lighthouses, port lights which present the possibility of collecting fees after the ship is parked, and lighthouses intended to warn ships away from hazards, which don’t present that possibility. You mention the second category of lighthouse, but your comments don’t suggest you have acknowledged the difference. That difference is central to one of Davies’ criticisms of Coase.

As long as we’re hauling Samuelson and Coase in here, lets bring North along as well. He has a good bit to say about transaction costs as a limiting factory in economic development. Ships are big, carrying high value cargoes. Paying a fee at a stopping point in a trip imposes a small transaction cost, relative to the value of the cargo. Arguing that “There is theoretically no reason that a private market structure couldn’t mimic this with roads” is fine, as long as that “theory” ignores higher transaction costs, in relative terms, for individually owned land yachts.

Finally, falling back on “optimal” as a standard for government performance is a big old cheat. If governments perform a function better than private enterprise, then we ought to consider whether government should undertake that function. No need to ask whether the result is optimal, only if it is better. Best is the enemy of the good and all that.

Problem with the Gene 6 Pack argument is that insurance transfers risk, and in the process puts a price on it, but it doesn't actually reduce risk. Lighthouses do, assuming they are properly placed and run. Now, for follow-on comments, making a bunch of suppositions about whether government would properly place and run lighthouses doesn't further the discussion much, so please stick to the real stuff.

K --

Your point? I was talking about the second category of lighthouse; you didn't read carefully. Or perhaps I didn't make myself clear. I was not belaboring the obvious point that port fees cover lighthouses for that port; rather, I was discussing the provision of beneficial non-appropriable goods by private associations, which has a long economic history you appear to have missed.

Not sure what the rest of your comment is about, nor why you've chosen such a snotty tone when I have the ability to delete anything you say that offends me. What's the difference between a private organization collecting the toll that the government currently collects? Either the tolls cover the costs of the road, or the government is subsidizing wasteful use of private cars, which would seem to be suboptimal to what the private market would produce.

As for the rest of it, of course we want the government to provide services that it is cheaper or more efficient to have the government provide. Lighthouses may be among them. Or they might not. You can't tell from this example; all Davies seems to have proved, provided his data is correct, is that the private market didn't provide an optimal level of lighthouse service, and neither did the government. I chose the term optimal because that is the term that D-Squared used. One you apparently don't have a problem with when it confirms your prejudices.

Your Chicago colleague Zirman Ahmed makes a point similar to yours about usage fees in his blog, and goes on to say that by enforcing their collection, the government was, in effect, creating a market. Much of contemporary microeconomics is about mechanism design--fashioning incentives and, sometimes, creating markets where none currently exist. The lighthouse owners lobbying probably had this effect.
Anyway, the link is here:
http://www.winterspeak.com/2002_12_01_archive.html#90092054

K. Harris, Rereading my comments would determine my main point, that insurance companies do not just spread risk, they mandate behavior. If you don't have a clean driving record, just try to buy car insurance.
A shipping insurance policy could very well refuse to pay for any loss that occured while navigating close to unlit hazards, and no ship owner would dare take the hazard of uninsured shipping except for very profitable cargo, like contraband.

>>Score one for the interventionist side

I'd just like to point out that the current version on my weblog has a disclaimer at the top specifically disavowing this interpretation of Mark's. I've always liked Coase, and don't want to suggest anything more than that he slightly disgraced himself on the question of lighthouses. Also, during the period under question, the UK was not exactly a democracy, so the distinction between the "government" and the private interests of the King was not always respected.

I'd also note that I don't understand Jane's argument with respect to private ownership of roads. The point being that there's an easy way to collect user fees for roads, because roads are excludable, while light isn't (hence, Samuelson picking on it as an example). David Friedman has a few other interesting observations about the non-excludability of light.

I would restrict myself to saying that, for lighthouses like the one that Sir John Clayton built but didn't light on Flamborough Head, there is a systematic problem of underprovision, which can be solved by the use of the government's monopoly on the use of force, to coerce people to pay for a service which they would not pay for otherwise. I seem to remember apecifically saying that Samuelson was wrong to have extended this point into a general argument for 100% public provision of lighthouses, but I may have fantasised typing that.

Finally:

>>Problem with the Gene 6 Pack argument is that insurance transfers risk, and in the process puts a price on it, but it doesn't actually reduce risk

I disagree with this; insurance *pools* risks, which, statistically, reduces the risk of catastrophic loss. It is for this reason that I tend to regard the provision of retirement insurance as one in which a single (probably governmental) provider is genuinely optimal.

In general, public good arguments are theoretical curiosa; most of the things which ought to be provided by the government out of general taxation, ought to be so provided for reasons of equality.

I wonder if dsquared has finally troubled himself to actually read The Lighthouse in Economics yet? The comments Brad DeLong posted were on what dsquared wished Coase had written, not what Coase actually did write.

Not that I expect much more accuracy when he actually does get around to it, since he got what Coase said in the Reason Magazine interview exactly backwards.

Megan quotes Mark Kleiman:

>> Yes, lighthouses were provided by private entrepreneurs, not by public agencies. But the payments from shipowners were imposed by law, not negotiated.

This is factually inaccurate. First, lighthouses were provided both by "government" (i.e. Trinity House) and by private entrepreneurs. But it was the failure of the government to provide the optimal number of lighthouses, that spurred the entrepreneurs to act.

Second, the private entrepreneurs did negotiate the fees with shippers and ports.

K. Harris says:

>>...all you do is make yourself seem unreliable with such stuff. D Squared did an interesting piece.

D Squared created a fantasy. He hasn't even read the Coase paper.

In the space of one week D Squared has been shown to be wrong about: Adam Smith on Physiocrats, the "urban legend" of a Coase-Samuelson feud, what Coase had to say about Pigou and Mill, the relevance of the date 1836 for lighthouses, that Coase ignored the; "non-homogeneity" of lighthouses as capital assets, what Samuelson wrote in his textbook, and a few other odds and ends that escape my memory just now.

>> basing an argument on what port operators would do is not all that helpful. Delong pointed out that individual docks often had individual owners, which creates a free-rider problem that a single-owner port wouldn’t present.

As I've pointed out to Prof. DeLong, this is The Fable of the Quays. The lighthouse entrepreneurs, and the shippers and ports negotiated the charges (based on tonnage, number of lighthouses passed, and number of trips per year). Very much like what Steven Cheung found in the apple orchards of Washington state, contracting with bee keepers for pollination services.

K. Harris also says:

>> Davies notes that there are two sets of lighthouses, port lights which present the possibility of collecting fees after the ship is parked, and lighthouses intended to warn ships away from hazards, which don’t present that possibility. You mention the second category of lighthouse, but your comments don’t suggest you have acknowledged the difference. That difference is central to one of Davies’ criticisms of Coase.

Davies also got this wrong, and he didn't even have to read Coase's article. Because Jim Glass presented him with the Reason Magazine interview in which Coase clearly addresses this:

>> Coase: Samuelson says I was wrong and he was right, and he froths at the mouth when people talk about the lighthouse example. He says Coase is wrong; he doesn't overcome the free rider problem. Who are the free riders? The foreign ships going past the British coast which do not call at a British port. Using Samuelson's approach, what do you do? Do you ask the foreign governments to give you a subsidy? Do you tax people in Britain because the foreign ships are getting help without paying for it? What do you do?

And as to K. Harris's:

>> Finally, falling back on “optimal” as a standard for government performance is a big old cheat. If governments perform a function better than private enterprise, then we ought to consider whether government should undertake that function. No need to ask whether the result is optimal, only if it is better. Best is the enemy of the good and all that.

This is hilariously a missing of the point of entire dispute. It was Samuelson who claimed he could prove that it would be optimal for government to provide the lighthouses, Coase showed that in historical fact, it didn't.

I apparently wasn't very clear about rival v. non-rival goods. Roads aren't the same thing as lighthouses, for the reasons that D^2 mentioned, and because roads have a small but measurable marginal cost of use and lighthouses don't. Nonetheless, there are theoretical models whereby such services can be provided privately, and in many places merchant associations used to provide many services that we think of as public functions now, like "public" roads, police forces, and the like. That doesn't mean that they will provide them at a socially optimal level either, of course.

If you are a bad risk you can not get insurance until you change your behavior!!!
If a port wants traffic, they don't want that traffic to have to pay extremely high insurance because of the lack of aids to navagation, so they put in aids to navagation to encourage traffic.
Not one of the comments about my initial contribution seems to comprehend the fundamental of insurance. Insurance is about companies not having to pay out any money or as some put it, you have to prove you don't need insurance before you can buy it.

Regarding Coase and the lighthouse...

Now, as DSquared admits his "extra mile" didn't include bothering to actually read the Coase paper he was debunking, and as Kleiman just followed on same, it's not surprising they get so many key things not only wrong but backwards in just this short passage:

>> Yes, lighthouses were provided by private entrepreneurs, not by public agencies.

Bingo, Coase wins! Because his whole point was that Samuelson said lighthouses could *not* be "provided by private entrepreneurs", when in fact they were -- conceived, designed, built, financed, owned, operated, bought, sold and bequeathed by them. Coase covers these facts in detail -- and that's that.

>>But the payments from shipowners were imposed by law, not negotiated

False. As Coase explains, shippers negotiated the lighthouse fee with the operator and then petitioned the King for the fee to be legally set.

>> and the system didn't work very well

Hello? Compared to what?? To Trinity House, the government authorized lighthouse monopoly, refusing to build any lighthouses at all for most of a century because it wanted to spend its money on other things -- which is what caused the private operators to appear??

Note well that while Kleiman is correct in saying lighthouses were provided "not by public agencies", there *was* a public agency set up at the time to provide them! He seems to miss the significance of this, as to what system was not working very well. ;-)

>> Score one for the interventionist side

What interventionist side?? There are no "sides" in this article, as Davies would know if he'd read it.

The *entire* purpose of the paper was to correct the deficiency of economists who had used lighthouses as an example of a pricing problem for 100 years -- culminating in the extreme position of Samuelson -- without ever having bothered to look at how lighthouses actually worked.

"How is that these great men have in their economic writings been lead to make statements about lighthouses which are misleading as to the facts, and whose meaning if thought about in concrete fashion is quiet unclear and very possibly wrong? The explanation is that these references by economists to lighthouses are not the result of having made a study of lighthouses or having read a detailed study by some other economist".

This paper is *that study*. It served two purposes -- it filled a factual information gap about lighthouses, giving information for other economists to use; and in doing so it provided a tangible warning of the mistakes economists can make by drawing conclusions from theory while ignoring facts.

And *that's it*. Coase makes no argument *at all* about how lighthouses *should* be provided.

The paper is just an historical exploration -- it is not any kind of important theoretical paper with policy prescriptions in it, as those who so love to argue about it try to make it.

"This paper is not intended to settle the question of how lighthouse service ought to be organized and financed. This must await more detailed studies".

Ah, but D-squared, having not read the paper, is not constrained by *that* fact and goes on to have the fun of constructing a great big straw man entirely on his own making -- and then of course enjoys the fun of knocking it down, "refuting" it!

>> Coase then ...fell into the trap of forcing the pieces to fit into his own grand blackboard generalisation -- that free market negotiation between willing participants could always solve problems of resource allocation so long as property rights were well defined

Except Coase said nothing even *remotely* of the kind in this paper. D-squared made this up out of whole cloth because it's what he wants Coase to have said, so he can stuff it with straw and whack it.

However, Daniel, if you are reading this, I have a challenge for you: Go borrow _The Firm the Market and the Law_ from the library. Read "The Lighthouse in Economics" in it.

Then, if you can find any place in that paper where Coase actually uses the lighthouse example as evidence in support of a claim that "free market negotiation between willing participants could always solve problems of resource allocation so long as property rights were well defined" quote it here. In quote marks -- like I've quoted Coase from that paper here and at the link below.

If you can, I'll buy a copy of that entire book at Amazon for you and have them ship it to you as your very own. It's got a lot of great stuff in it, and if as you've said elsewhere you like Coase's work other than on lighthouses, I'm sure you'll appreciate it.

OTOH, if you can't, maybe we'll all realize that it's not all *that* easy to refute the published peer-reviewed work of a Nobel winner without first reading it to at least learn what one is trying to refute.

For any who are interested, during the discussion on DeLong's site I posted a short but relevant segment from Coase's paper at
http://www.mindspring.com/~jimglass/lighthouses.htm

Jim:

a) This is pretty damn silly. My own weblog has a comments page. So does the Brad DeLong comments section, where we were having a conversation about this. You have my email address. Why are we having this conversation on the website of yet a third party?

I only mention this because it would have saved you from saying:

b)>>What interventionist side?? There are no "sides" in this article, as Davies would know if he'd read it.

The phrase "interventionist side" is Mark Kleiman's, and I specifically disavowed it at the top of my article. I would say "as you would know if you'd read it", but you *have* read it and *do* know. What's going on here?

c) >>The *entire* purpose of the paper was to correct the deficiency of economists who had used lighthouses as an example of a pricing problem for 100 years -- culminating in the extreme position of Samuelson -- without ever having bothered to look at how lighthouses actually worked.

In which case, Coase was either monumentally misquoted by Reason magazine, or monumentally misquoted himself to them, both of which possibilities I allowed for in my essay. The specific passage at which most of my ire is directed is:

"[...]They were financed by private people, they were built by private people, they were operated by the people who had the rights to the lighthouses, which they could bequeath to others and sell.

Some have said what happened in lighthouses wasn't really private enterprise. The government was involved in some way in setting the rights and so on. I think that's humbug because you could say that there's no private property in houses by that logic, since you can't transfer your rights to a house without the examination of title and registration and without obeying a whole series of regulations, many enforced by government. "

I'm hoping that you will agree that this passage is as misleading as I say it is.

d) >>if you can find any place in that paper where Coase actually uses the lighthouse example as evidence in support of a claim that "free market negotiation between willing participants could always solve problems of resource allocation so long as property rights were well defined" quote it here. In quote marks -- like I've quoted Coase from that paper here and at the link below.

Why are you making this bet, Jim? You've read my article, and you know full well that I use the phrase "implying without saying" above. You also, presumably, know that I've got the book on order from Amazon, because I think I've mentioned that fact in comments somewhere.

e) In context, however, I think that the passage "Samuelson says that no one would build a lighthouse with the idea of making a fortune. Actually, people did build lighthouses and did make a fortune. " is hard to interpret in any other way than as an attempt to assert that lighthouses could be provided purely as entrepreneurial businesses. If Coase had said anything like "Actually people did build lighthouses when the government imposed a toll and made a fortune", the sentence would have been pointless.

f) >>maybe we'll all realize that it's not all *that* easy to refute the published peer-reviewed work of a Nobel winner

Jim, my article was about an interview in a poorly-regarded libertarian journal and never made any bones about the fact. When that book arrives, let's have a good old argument about lighthouses and/or Coase. But please don't accuse me of lying when I have _bent_over_backwards_ to avoid doing so.

Daniel Davies objects:

>> Jim, my article was about an interview in a poorly-regarded libertarian journal and never made any bones about the fact.

Which simply is not true. Here is what Davies claimed his article "was about":

>> ...I haven’t read the full Coase paper on lighthouses in economic history.... However, a quick google search for "Coase lighthouses" reveals a lot about the subject, and I've looked through those pretty thoroughly. In any case, the use to which an academic article is put, is usually much more important to the generality of the world, than the specifics of what was said in the first place.

Shortly thereafter, Davies continues:

>>...the original Samuelson-Coase controversy. It stems back to a paper by Coase on "The Lighthouse in Economics", which set out as an attack on the typical use made by economists of lighthouses as a public good. ....The main thrust of Coase's article was against comments made by Mill, Pigou and others, but he also paused to have a crack at Samuelson....

and,

>> ...for most of the history of the United Kingdom, a sizeable proportion of its lighthouses have been owned, operated and financed by private individuals and corporations. This revelation was the main theme of Coase's lighthouse paper....

It was only after the above that Davies quoted the Reason interview, and began to build his strawman about what Coase "really meant". And of course, Davies also hilariously misunderstood what Coase said was the relevance of the year 1838.

But Davies ends his article with a clear reference to what he thinks Coase said IN HIS ARTICLE:

>> Samuelson had a good argument about the optimal provision of lighthouses.... But he had to, as I say, put a fucking cherry on top by overextending his sensible blackboard argument into a generalisation about the world. Coase then, correctly and admirably, called him on it by falsifying the generalisation, but then fell into the trap of forcing the pieces to fit into his own grand blackboard generalisation -- that free market negotiation between willing participants could always solve problems of resource allocation so long as property rights were well defined.

And, as Jim Glass correctly points out, Coase never said that. Not in the article, and not in the Reason interview. In fact, in the Reason interview he talked about ships that do not stop in English ports at all, as a free rider problem to which nobody had an answer.

Daniel Davies wrote:

> Jim, my article was about an interview in a poorly-regarded libertarian journal and never made any bones about the fact...

It wasn't about the *substance* of Coase and lighthouses? A number of people seem to have gotten the wrong impression. But if it was just about a casual conversation in Reason, OK, let's stick to that. Here it is: http://reason.com/9701/int.coase.shtml

(BTW, considering how poorly regarded that magazine is, it's odd how many Nobel winners, along with such lesser lights as Stephen Hawking, Richard Posner, John Searle,Steven Pinker, the noted libertarian Christopher Hitchens, et.al., stumble into it. http://reason.com/interviews.shtml )

> But please don't accuse me of lying...

Where did I accuse you of lying??? I just pointed out that you admitted not having read Coase's paper on lighthouses while debunking Coase on lighthouses -- and that the kinds of errors to be expected in such a case occurred. I also said you constructed a straw man to argue against by attributing a position to Coase that he never took -- which you persist in doing here.

> a) This is pretty damn silly. My own weblog has a comments page. So does the Brad DeLong comments section...

Where I made the same comments and you ignored, or did not read, them. If Megan thinks my response to what was posted here is inappropriate, she can tell me or delete it.

>c) The specific passage at which most of my ire is directed is: "[...]They were financed by private people, they were built by private people, they were operated by the people who had the rights to the lighthouses, which they could bequeath to others and sell...

Which is 100% true, right? When Samuelson said that *couldn't happen*. THAT's the point! End.

> "... Some have said what happened in lighthouses wasn't really private enterprise. The government was involved in some way in setting the rights and so on. I think that's humbug because you could say that there's no private property in houses by that logic, since you can't transfer your rights to a house without the examination of title and registration and without obeying a whole series of regulations, many enforced by government. "

I'm hoping that you will agree that this passage is as misleading as I say it is.

That passage is 100% correct. Are you really claiming that the fact that government created property rights in lighthouses and enforced toll collection means private enterprise didn't provide them???

You know, if a tenant doesn't pay the rent due on an apartment the government will come and throw him out on the street -- maybe even send him to jail for criminal tresspass. The gov't enforces rent collection, and here in NYC it even sets the rents.

So are you saying this means private enterprise doesn't provide housing here in NYC when people build privately owned apartment buildings for profit?

And btw, even in the Reason interview your claim that tolls were imposed without negotiation is contradicted: "I thought it was interesting that the shippers were the ones that lobbied to get the toll because they wanted the incentive for the private investor to build the lighthouse."

Perhaps you will incorporate this into your analysis now?

d) > Why are you making this bet, Jim? You've read my article, and you know full well that I use the phrase "implying without saying" above...

Right, and I pointed it out: Coase didn't say anything of the kind, you simply imputed that position *to* him and argued against *that*, rather than what he actually said. That's called arguing with a straw man.

Hey, I'll still pay for the book if you can show anywhere in the Reason interview where Coase used lighthouses as an example in support of the claim "free market negotiation between willing participants could always solve problems of resource allocation".

If you know anything about Coase you know he's *not* a libertarian and *doesn't* claim that is a general rule! (Hint: transaction costs.) He even says it in the Reason interview, and it's already been quoted several times: "My approach is to compare the alternatives."

For some reason you insist on reading this as "My approach is a libertarian belief in pure market negotiation among parties with no role for gov't except assigning property rights". Then you stick it on that straw man and go *whap*!

e) > If Coase had said anything like "Actually people did build lighthouses when the government imposed a toll, and made a fortune", the sentence would have been pointless.

Um ... Coase's whole lighthouse paper says *exactly* that in great detail: 'Samuelson said people couldn't build lighthouses to make their fortune. But actually people did build lighthouses to make fortunes when a toll system was worked out and enforced by the King. Here's how ...'

And the point made was important indeed. See the words "the entire purpose of the paper" that you quoted in c) above. It's just not the false libertarian policy point that you keep trying to foist up as a straw man. The point was about *how economists should conduct economic research and analysis* NOT about how lighthouses or anything else should be provided as a matter of policy.

For third party's fine explanation of the meaning of the paper, and its importance to economics ever since, see http://www.economicprincipals.com/archives/02.09.29.html (Scroll down to #2) (and notice the words "voluntary tolls")

P.S.: If you prefer to continue this by e-mail it's fine by me.

Happy New Year.

Some final overview thoughts on this whole lighthouse thing....

It's interesting how such a boring historical analysis containing *no* policy prescriptions has created so much argument for almost 30 years. I'm trying to imagine a detailed description of how 16th-century canals or windmills or pottery plants were provided causing such a ruckus today, but just can't. ;-)

The way it looks to me is that many people who discuss the lighthouse paper build this false construct in their heads:

[1] Samuelson said profit-motivated private enterprise could not provide lighthouses, only the government can.
[2] Coase showed that profit-motivated private enterprise did private lighthouses under given institutional arrangements.
[3] THEREFORE, Coase argued that lighthouses could be provided independent of any role for government, and better too, as a matter of policy.

#3 is pure fantasy, there's nothing like it in the paper, express *or* implied. Yet in our day so many people are so politically sensitive about the size of government that the instinctual anti-government kinds and instinctual defenders of government both leap to # 3 and argue on about it all endlessly -- and then attribute it to Coase.

But Coase in his paper *explicitly* goes in the opposite direction from #3 saying he is making *no* policy prescription. "This paper is not intended to settle the question of how lighthouse service ought to be organized and financed. This must await more detailed studies". (And, c'mon, any argument that Coase "implies" the exact opposite of what he explicitly says is disingenuous at best.)

Coase's paper does say #1 and #2 -- which if you stop there, is pretty boring. It's really no more than Samuelson making a mistake of fact and Coase saying "gotcha!". Really, that's basically what it is. That's why Samuelson gets so pissed off and "froths at the mouth" about it.

Coase then moves on to an *actual* number #3 in which he answers how a great thinker like Samuelson (and others before him on this subject) could be so mistaken about simple facts -- and he says it's because economists often push theory too far without checking it against the facts.

"The explanation is that these references by economists to lighthouses are not the result of having made a study of lighthouses or having read a detailed study by some other economist ... I think this is the wrong approach".

So Coase's *real* #3 is a prescription for economic *analysis* -- economists should pay more attention to the real world, and then they may realize there are more possible ways available to accomplish something than their theories first indicated to them. And *then* they will be better able to recommend best policy....

"I think we should try to develop generalizations which would give us guidance as to how various activities should best be organized and financed. But such generalizations are not likely to be helpful unless they are derived from studies of how such activities are actually carried out within different institutional frameworks."

What's so controversial about that? If we stick to what Coase actually said, isn't it actually rather boring -- with all the pages and pages of lighthouse history added?

As a result of my comments on about all this on DeLong's site, an academic economist e-mailed me: "Samuelson overstated his case ... but I still find Coase's point uninteresting, unlike the facing Samuelson took at the hands of, say, Tiebout."

Good point! Tiebout countered Samuelson on how public goods should be provided *today* as a matter of *policy*. That sure had a lot more real-world impact than any history of 17th century lighthouses! Why so much less controversy?

Here's what I found to be a rather interesting paper on the ideas of Coase, Tiebout, Samuelson, and others battling it out this very day in real-life New Jersey...

http://www.dartmouth.edu/~wfischel/Papers/00-19.pdf

And that's the end of me on Coase and lighthouses, here at least.

[Except for this last footnote: The "free rider" problem, regarding ships that pass by at sea without coming into port, which seems such an important point to some, hasn't been solved yet.
As Coase pointed out in his paper, even *today* (well, 1974) ships that pass by at sea still don't pay lightouse fees. So, as Coase asked in the Reason interview, what's the point of people raising this as some sort of objection when they don't have an alternative -- even hundreds of years later?]

I disagree, Jim. The "correct institutional arrangements" you mention are "a tax on shipping". Private enterprise can provide anything if it's given the authority to coercively extract payment from people who have not agreed to make it (which is where your analogy to tenancy falls apart).

You are failing to make the distinction, which Coase must have known about, between private *individuals* providing something, and something being provided by private *enterprise*. "Enterprise" is an activity-noun; it refers to enterpreneurial construction and financing of a capital project. Petitioning the government for a letter of patent is not really an "enterprise".

Furthermore, (and with the obvious caveat relating to the paper, which still hasn't arrived), you and Coase seem really quite unfair in your assessment of the Trinity House. Reading Trethewey's history, it seems clear enough to me that the experience of the seventeenth century could be just as easily characterised as Trinity House sensibly deciding to contract out the development and construction of lighthouses to private operators, rather than the obstructive bureaucracy of Trinity House being overcome by heroic entrepreneurs. I'm not sure if your own arguments relating to TH as a "monopoly" are due they seem to imply that a monopolist does not build new profitable units, and they ignore the fact that lighthouses do not meaningfully compete with one another.

>>What's so controversial about that? If we stick to what Coase actually said, isn't it actually rather boring -- with all the pages and pages of lighthouse history added?

I'm sure you don't take things at face value in this way in your daily life! The only reason for writing such a paper was to provide opponents of public goods with a debating point. Coase must have known, from day one, the use to which this paper would have been put, and he did nothing to stop it and (as per the Reason interview) a fair old amount to help others muddy the waters. That was the purpose of my remark about "product liability" of academic articles in the original piece. Coase could have taken your own intellectually honest admission that Samuelson's point about free riders was fundamentally right, as a model for his own comments in the Reason interview, but he didn't. This issue was not "just about lighthouses" and it is disingenuous to claim that it is. As I've said, both here and in the original article, I agree with Coase's methodological point and like his work because of it. But I don't think that his paper was innocent, and I'm no more convinced by his "disclaimers" than I am by any other manufacturer of dangerous goods.

By the way, I am not aware of any post of yours on Brad's site or my own that I haven't replied to, and maintain the view that you stepped over the line into personal attack in yours above. But thanks very much for this response, which seems to me a lot more reasonable.

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