The lighthouse is a commonly used example in economics. Different economists use the example of a lighthouse to illustrate certain economic theories of their own. Therefore, "lighthouse economics" is not a branch of economics like "development economics" or other economics, but various economic theories put forward around lighthouses.
The necessity of public property rights
AC Pigou, the last representative of the Cambridge School in the twentieth century, used a lighthouse as an example to illustrate the market failure and the importance of government intervention. necessity. Whatever Pigou's own original intentions, the inference to be drawn from Pigou's lighthouse is that public property rights are necessary.
In daily life, we have to consume two types of items of different nature: personal items and public items.
Private goods are those products produced and sold by private enterprises, which are characterized by exclusivity in consumption. For example, a pair of shoes cannot be worn by two people at the same time. If someone eats an apple, others cannot eat it. To consume this good, money must be paid in exchange for its ownership and consumption rights. Therefore, such goods can be produced by private enterprises and exchanged through market pricing. Market regulation mechanisms are applicable to such items. The characteristic of public goods is non-exclusiveness in consumption. This means that once the product is produced, it cannot exclude those who do not pay for it from consumption. Because of this, some economists define public goods as goods that "once produced, the producer cannot decide who gets it." The lighthouse is a typical public item. No matter who built the lighthouse, anyone can use it for free. This phenomenon of free use of public goods is called "free riding" by economists. This characteristic of public goods determines that private companies are unwilling to produce them and cannot set prices or charge fees. In this way, the market adjustment mechanism does not apply to public goods. This situation was called "market failure" by Pigou.
However, public items like lighthouses are indispensable to the economy. In this way, the government must come forward to build lighthouses and produce public goods. British classical economist J.S. Mill pointed out as early as 1848 that "Although ships on the sea can benefit from the guidance of lighthouses, it is impossible to charge them a fee. Unless the government uses Forced taxation, otherwise lighthouses will be unprofitable and no one will build them."
Pigou used a lighthouse to support his views on government intervention. He believes that since lighthouses are difficult to generate profits, if they are produced by private parties, the private benefits will be lower than the social costs. In this case, private enterprises aiming to maximize profits are inevitably unwilling to produce, so the government must come forward to build and operate lighthouses.
Following this logical line of analysis, we will ask the question: Who owns the property rights to this kind of lighthouse built by the government? Property rights should belong to the person who financed the construction of the lighthouse. The government's funds for building lighthouses come from people's taxes. Therefore, the property rights of public items such as lighthouses should belong to all the people as taxpayers. That is to say, lighthouses are theoretically owned by the whole people (of course, if they are owned by the local people) The government collects taxes and builds, which can also be said to belong to collective ownership). The government, as a representative of society, builds and owns the lighthouse, so the lighthouse is effectively owned by the state. Public property rights generally take the form of state ownership. That is to say, the existence of public items also proves the necessity of public property rights. Although Pigou did not further demonstrate these issues, the necessity of public property rights derived from public items is a logical conclusion. The existence of private property rights does not exclude public property rights, which is one of the reasons why there is a considerable state-owned economy and public property rights in Western countries where private ownership is the main body. Hegel has a famous saying: Everything that exists must be reasonable. The existence of public property rights is also reasonable.
However, this view is not without disagreement. Some economists have suggested that the shortcoming of public property rights is the lack of self-interest incentives, and lighthouses built by the government are often poorly managed.
And, more importantly, how can we build more cars when everyone is here to hitchhike? Or to put it another way, if everyone comes to eat a free lunch, how long can this kind of lunch last? This questioning of public property rights is the reason why modern property rights theory emerged.
The possibility of privatization of public property rights
The famous American economist Ronald Coase is the founder of modern property rights theory. Coase's property rights theory is based on the transaction cost theory and proves the inevitability and rationality of private property rights. It is considered to be one of the major breakthroughs in post-war microeconomics. Because of this contribution, Coase was awarded the 1991 Nobel Prize in Economics. We are not going to discuss property rights theory in full here, but only want to introduce Coeth’s views on property rights theory on the lighthouse issue.
The reason why Pigou’s lighthouse introduced above leads to public property rights is because of the difficulty of charging for public items such as lighthouses. Coeth was precisely demonstrating the possibility of lighthouse tolls, thereby demonstrating that private property rights were not only necessary but also possible for the economy.
Coase published the article "Lighthouse in Economics" in 1974. In this article, Coase refuted the general economist's view that private lighthouses cannot be charged or are unprofitable based on research on the early British lighthouse system, proving that even for public goods such as lighthouses, privatization is possible of. This view of Kesi was introduced and developed by his disciple Zhang Wuchang, a professor at the University of Hong Kong, in the article "Kesi's Lighthouse".
Coase explained based on the facts that early British lighthouses were built and operated by private individuals. These private individuals successfully charged private ship owners based on the size of the ship and the number of lighthouses they passed, and profited from it. . In the future, the nationalization of lighthouses will not mean that private individuals cannot charge fees, but that the fees will be too high. Zhang Wuchang further divided the difficulties of lighthouse charging into two categories: one is peeking at the lighthouse but refusing to acknowledge the fee and refusing to pay; the other is "free riding", admitting to seeing the lighthouse but not paying the fee. The former situation is not important, and the latter situation can be solved by the government granting "monopoly rights" to private lighthouses. Therefore, the conclusion is that it is possible to charge for public items such as lighthouses, and the difficulty of charging for lighthouses does not lead to the conclusion that the government must provide public items. As far as property rights are concerned, the existence of public property rights is not necessary. It is entirely possible to privatize public property rights. Moreover, since efficiency is higher under private property rights, privatization is the only way to overcome the inefficiency under public property rights. Coase's property rights theory undoubtedly provided a theoretical basis for the privatization policy of state-owned enterprises in Western countries over the past seventy years. Perhaps this is one of the important reasons why property rights theory became popular in Western economic circles after the 1970s and why Coeth won the Nobel Prize in Economics.
However, not all economists accept this view. First of all, the issue of charging for public items has not been completely resolved. The non-exclusive nature of consumption of public goods exists objectively, which is why charging is very difficult, if not impossible. Taking the lighthouse as an example, in order to make those who do not admit to using the lighthouse or hitchhikers to pay the fee, we must have the necessary supervision equipment and personnel. Can these supervisions play an effective role and how much does it cost (for example, using a modern computer system It is very expensive to carry out supervision), and it is not a simple matter whether the fees charged are enough to offset the costs or make a profit. If charging is very difficult or the profit is very small, will any private person be willing to operate a lighthouse? Furthermore, if private parties are attracted to build lighthouses based on profit, it will also lead to irrational allocation of resources or waste. A similar example is that when private property rights are implemented, a kitchen shared by four households must install four electric lights. If public property rights are implemented, one lamp is enough.
Pigou’s lighthouse concluded that public property rights are necessary, while Coase’s lighthouse denied the necessity of public property rights. In reality, public property rights do have various shortcomings, and privatization is not the best way to overcome these shortcomings. There are many contradictions, where is the way out?
Club theory and corporate property rights
American economist James Buchanan once proposed the famous "fair choice theory", for which he won the 1986 Nobel Prize in Economics.
Buchanan did not propose a theory about the lighthouse problem, but his theory of clubs was related to the theory of property rights that solved the lighthouse problem. Therefore, the club theory is regarded as a part of lighthouse economics and is called "Buchanan's lighthouse".
Some items are different from purely private items consumed by individuals, and different from public items without exclusivity. Their consumption capacity is limited, but consumers are unlimited. This kind of item is between personal items and public items and is called club items. This kind of item is exclusive, that is, it is consumed jointly by members who belong to a certain club, and is exclusive to other members. But within the club, there is no antagonism between members, that is, everyone can enjoy together without conflict. For example, swimming pools owned by certain groups are such club items.
The property rights of this kind of club items are neither private nor completely public, but a kind of corporate ownership (similar to collective ownership). The characteristic of this kind of property rights is that members of the society have the same ownership and enjoyment. Buchanan emphasized that the property rights form of the club theory only applies to those products that can be excludable, and is not fully applicable to public goods whose basic characteristics are non-exclusive.
However, if the change of property rights is taken into account and public items such as lighthouses are changed into club items like swimming pools, public property rights can be changed into community property rights. In the case of lighthouses, Buchanan noted that a change in ownership could prevent ships without a "lighthouse license" from approaching or passing through the strait illuminated by the lighthouse. Unfortunately, Buchanan did not further explain how to use the method of changing property rights to solve the free-riding problem of public goods such as lighthouses. The enlightenment of his club theory on how to solve the problem of lighthouse property rights is that we need a malleable property rights structure and the introduction of exclusivity devices into public items. For example, the United Kingdom used the surveillance system to turn public goods such as television broadcasts into paid club goods, thus realizing the transformation from public property rights to corporate property rights.
In this kind of community property rights, club members jointly bear the expenses and enjoy jointly. The directness of benefits and responsibilities motivates all members, thereby improving efficiency. Once a member is dissatisfied with the club, he or she can leave (a practice known as "voting with their feet"). Compared with private property rights, it is more suitable for certain products that are collectively consumed. Compared with public property rights, it is more direct and efficient. Because of this, this type of corporate ownership is quite widespread, and some formerly socialist countries (for example, Yugoslavia) also adopted this form when reforming public property rights. However, turning public property rights into community property rights is not the only form of property rights change, nor is it the best form of property rights change. What kind of property rights should be adopted is still a matter of concern to economists and a hot topic in socialist economic reform.