Academic journal article The Town Planning Review

The Political Economy of Coase's Lighthouse in History (Part II): Lighthouse Development along the Coast of China

Academic journal article The Town Planning Review

The Political Economy of Coase's Lighthouse in History (Part II): Lighthouse Development along the Coast of China

Article excerpt

As a sequel to a critical discussion of the debate on the question of public goods in connection with Coase's historical analysis of the lighthouses in Britain (published in TPR 79.4), this case study concerns the provision of a Chinese lighthouse, Gap Rock Light, by a British Crown Colony, Hong Kong. The study is informed by the precise meanings of key economic concepts of public goods and a free market, the reality of levying light dues on the basis of tonnage, and the changing nature of the lighthouse due to technological advances in shipping.

Preamble

In a Hong Kong criminal appeal1 under ss. 62, 64 and 78 of the Merchant Shipping Ordinance, 1953, the plaintiff was acquitted of all charges as they were nullities. One such charge was that the accused did not pay 'light dues' after entering the port of Hong Kong. This charge, prosecuted under s.78, was found a nullity because the correct interpretation of s.78 of the law was that a failure to pay dues was wrongful only when a ship departed or attempted to depart without having paid light dues.

This solitary common law case on light dues in a British Crown Colony, rarely of any interest to law students in Hong Kong, is, however, an excellent example for an economic treatise on a famous paper by a Nobel laureate, 'The lighthouse in economics' (Coase, 1974). A light due is charged for the use of a lighthouse.

Theoretical context

In our previous article (Lai et al., 2008), we explained various definitions of a public good as found in the planning and economics literature and then, in light of its significance for planning theory, scrutinised the ongoing debate on 'The lighthouse in economics' (Coase, 1974), which targets Samuelson's (1964) textbook example of a public good for which no user fee can be levied due to insurmountable free-riding problems. Nor should any fee be levied, even if technology permitted elimination of free-riding, because the marginal cost of ships' use of the lighthouse's light is zero.

Coase's idea had remained almost unchallenged for almost 20 years when the work of Van Zandt (1993) appeared. Following Van Zandt's (1993) paper, the most important dedicated historical critiques of Coase's lighthouse paper have been in the work of Taylor (2001) and Bertrand (2006). Taylor did not openly attack Coase's work. Instead he argued that its analysis had omitted the institutional issues that led to the concentration of lighthouse supply into a monopoly, Trinity House. In agreement with Van Zandt, Bertrand argued the lighthouse market had not been as private as Coase represented, nor were the so-called private lighthouses as efficient as Coase suggested (Bertrand, 2006, 309).

Barnett II and Block (2007a, 2007b) reviewed the cases of Van Zandt (1993) and Bertrand (2006) and found both to have erred in their logic, although both were correct in their conclusions. On Van Zandt (1993), Barnett II and Block (2007a) maintained that private lighthouses were indeed historically operational, and Van Zandt actually provided evidence for this claim without recognising it as such.

Regarding Bertrand (2006), Barnett II and Block (2007b) agreed that he had shown Coase to be erroneous on the claim that the lighthouse example undermined the claim that the market undersupplied public goods, but disagreed with his reasoning. Central to the libertarian view of Barnett II and Block was that a free market should not have any element of 'compulsory payment'. This point was in agreement with the observation of Klein (2006), who also emphasised that the lighthouses surveyed by Coase were actually government-granted monopolies rather than free enterprises.

The key theoretical question raised by Barnett II and Block is whether a free enterprise or market (regulated or unregulated) is compatible with mandatory, involuntary or forced payment. In other words, does it matter whether the consumer of the lighthouse throughout history (whether it was funded by indirect tax (toll) or direct tax) had the choice of not using the lighthouse service and/or not paying any 'spot' charge at the point of consumption or later at the end of the voyage (the Barnett-Block Question)? …

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